A hotchpot agreement is a legal mechanism used to distribute assets among beneficiaries based on a proportional share of the total value of the estate. It is also known as a “marshalling agreement.” In essence, it ensures that each beneficiary receives an equal proportionate share of the remaining assets, regardless of their original allocation.
This type of agreement is commonly used when an estate involves more than one type of asset. For example, a will may specify that one beneficiary receives a particular piece of property, while another beneficiary receives a certain amount of cash. In the event that the estate does not have enough cash to satisfy all of the beneficiaries` claims, a hotchpot agreement would be used to re-distribute the assets based on their total value.
To illustrate this concept, let`s say that an estate consists of a property worth $500,000 and $100,000 in cash. The will specifies that beneficiary A should receive the property and beneficiary B should receive $200,000 in cash. However, when the estate is settled, there is only $150,000 in cash available. Without a hotchpot agreement, beneficiary B would only receive $150,000, which is less than what was specified in the will. With a hotchpot agreement, the remaining $50,000 from the property would be added to the $150,000 in cash, and the assets would be re-distributed proportionately. In this scenario, beneficiary A would receive $375,000 (75% of the total value) and beneficiary B would receive $125,000 (25% of the total value).
Hotchpot agreements are often used in conjunction with other legal mechanisms, such as trust agreements or probate proceedings. They are especially useful in cases where the estate involves complex assets, multiple beneficiaries, or disputes over how the assets should be divided.
While hotchpot agreements may seem complicated, they are an important tool in ensuring that an estate is distributed fairly and according to the wishes of the deceased. If you are involved in settling an estate that involves multiple types of assets or beneficiaries, it may be worth consulting with a legal professional to determine whether a hotchpot agreement is appropriate.