What happens to gifts to beneficiaries from a person who dies without a Will?
If a person dies without a Will and made gifts shortly before their death, the value of those gifts might need to be deducted from a beneficiary’s inheritance.
What is ‘Hotchpot’?
This principle is known as ‘hotchpot’ and requires certain gifts given during the lifetime of a deceased person to be taken into account or ‘brought into hotchpot’.
Persons who die without a Will are said to have died ‘intestate’. The estate of a person who dies intestate is distributed in accordance with rules set out in legislation.
No Will – Intestate
If a person who dies intestate made a gift of over $1,000 within the five years immediately before his or her death to someone who would inherit under the legislation, then that gift comes out of that person’s inheritance. This does not apply however where the gift was given to a spouse or domestic partner.
For example, an elderly man dies leaving his three adult children surviving him. Unfortunately, he never made a Will and died intestate. Ordinarily, his three children would share his estate equally. However, four years ago, one of his children went through a nasty divorce so he gave that child $20,000 to help them back on their feet.
When the man died, because this gift was made within five years before his death, it meant that the child he had given the money to was now going to inherit $10,000 less than the other two children.
If there was proof that the deceased person did not intend for this to occur or it appears from the circumstances of the case, then it will not apply. It can be difficult to obtain this proof unless a person made a clear direction in their Will or in another document.
If there is uncertainty, or if there is disagreement over the deceased’s intentions or what appears from the circumstances of the case, then the matter may need to be referred to a Court to determine. This can result in delays in administering the estate and additional legal expenses.
Risk of not having a legal Will
Hotchpot is not only an issue for persons taking the risk of not having a professionally drafted Will, but also for persons administering the estate of a person who died intestate. Such persons will need to consider whether the deceased made gifts or a settlement in favour of particular persons within the five years before their death. If they have, and the gift was over $1,000 then those gifts may have to be brought into hotchpot and effectively deducted from a beneficiary’s inheritance.