What Is The Hotchpot Rule?
This article explains the “Hotchpot” rule as a concept in succession law and notes where this rule no longer applies in Australian succession law. The Hotchpot Rule applies when someone dies intestate (that is, without a valid will) in certain jurisdictions in Australia. In these states and territories, the estate’s administrator must consider property that the deceased previous gave to each of the beneficiaries as a factor in determining the distribution of the deceased estate according to intestacy legislation. The Hotchpot rule can also be inserted as a clause in a will when the testator wishes to account for gifts that he or she has given to family members during his or her lifetime.
Origins And Impact Of The Hotchpot Rule
The Statute of Distributions 1670 was the origin of the Hotchpot rule in English law. The rule was designed to equalise the benefits that a deceased’s children received from an estate through an account of any previous settlements or advancements that the parent had provided in the past. For example, if someone who later dies intestate gave one of their children a significant gift (such as a house), then the value of this gift would be deducted from that child’s inheritance. Essentially, the child who received the significant gift would be eligible to receive their share of the deceased estate less the value of the benefit that they had already received.
Application of Hotpotch Rule
The Hotchpot rule applies differently depending upon where the deceased estate is located in Australia and does not apply at all in some jurisdictions. It is therefore very important that any administrator or beneficiary who thinks that the Hotchpot rule applies to their situation consults an experienced solicitor in their specific jurisdiction.
The Hotpotch rule applies in both South Australia and the Australian Capital Territory. In these jurisdictions, the rule does not apply to the deceased’s de facto partner or spouse on the premise that the deceased’s partner has special status under intestacy. In the Northern Territory, the Hotchpot rule applies only to the deceased’s children, on the basis that children should not be provided for twice. In addition, the Hotchpot rule differs in South Australia in that there is a limitation period that applies to such gifts. Only advances made in the five years prior to the intestate person’s death are considered in the distribution of the deceased estate.
The Hotchpot rule does not apply in New South Wales, Queensland, Western Australia and Tasmania. The provision was also recently abolished in Victoria, following the recommendation of the National Committee for Uniform Succession Laws.
Criticism of the Hotpotch Rule
There are a number of problems with the use of the Hotchpot rule. Critics complain that it causes undue and unnecessary complications to the already complicated process of administering an intestate estate. In addition, in jurisdictions where the rule only applies to children of the deceased (such as the Northern Territory and previously Victoria), the rule could result in unfair outcomes because other beneficiaries (such as dependents) were not subject to the equalisation.
A more significant criticism of the rule relates to its potential to override the genuine wishes of the deceased. In some cases, a deceased may have intended to benefit their children unequally. There are many justifiable reasons why a parent might need to provide more for one of their children. This could reflect the testator’s well-considered view of the differing needs of each child. In fact, critics argue that the Hotchpot rule is an archaic residue of a 17th-century law that has little to do with the way modern Australian families provide support to their children.
In Pritchard v Pritchard , the Supreme Court of Western Australia considered whether all the advances that the deceased made to his children during his life should be accounted for in the distribution of his deceased estate. In this instance, the testator left no individual bequests but entrusted his executor to sell his assets and distribute them to his children equally as tenants in common. However, the will also included a Hotpot clause that referred to an attached, typed list of advances that the testator had made to each of his children. The clause directed that the amount of these advances should be deducted from the share of the estate given to each child. The testator expressed to his solicitor his wish to “square things up” and to ensure that each child received “equal amounts over time”.
The court was challenged to determine how to implement the wishes of the deceased, as the schedule attached to his will listed some of the advances made to his children, but the list was not a complete or accurate reflection of every advance. Most notably, some advances made after the testator drafted the will were not recorded at all, contradicting the testator’s expressed desire to give each child equal amounts over time.
The court found that on its face the will did not call for equal distribution over time to each child. Rather, the will specifically directed that only those amounts listed in the schedule attached to the will should reduce the share given to each child. Thus there was no true equalisation (or “squaring up”) of the amounts that each child received over time. This case demonstrates the importance of drafting a Hotchpot clause to reflect the true intention of the testator.
If you are not sure if the Hotchpot rule applies to you, or you would like to insert a Hotpotch clause into your will, the contested wills team at Armstrong Legal can help. Please call 1300 038 223 or contact our experienced team to talk over any testamentary or probate issue.