'Please Sir, may I have some more' - gifts to children - the presumption against double portions and hotchpot
This article examines the fairly obscure area of law surrounding the presumption against double portions and hotchpot, and the potential pitfalls for the unwary testator and their will drafter.
There is a presumption under common law that a parent would not intend to benefit one child twice.
Presumption against double portions
The presumption against double portions and its legal principles are set out in the leading authorities of Re Vaux [1939] Ch.465, Re Cameron [1999] Ch. 386; Re Clapham [2005] EWHC 3387 (Ch); Re Frost [2013] EWHC 435 (Ch).
The presumption only arises when a parent makes gifts to their children. If a testamentary gift and a subsequent lifetime gift are both characterised as portions, there is a rebuttable presumption that the testator intended the lifetime gift to adeem the testamentary gift, either wholly or in part. The burden of proof lies with those supporting ademption. The consequence is that some or all of the lifetime gifts may be brought back into the estate upon the testator's death through the application of the hotchpot principle.
What constitutes a 'portion'?
A portion is defined in Re Cameron as a gift intended to set up a child in life or make substantial provision for them. Practitioners are therefore faced with the often-difficult task of establishing whether the lifetime gift(s) made to a child after a Will is executed (in which that child receives a share of the parent's estate) was intended by the parent to set them up in life.
Evidence of the testator's intention when making the lifetime gift is key. A lifetime gift from a parent to a child that falls under the categories of 'pure bounty', 'spontaneous bounty', or 'mere gifts' will not be considered to be a portion.
Where a lifetime gift or payment appears to be a portion, the presumption against double portions will arise.
How can the presumption be rebutted?
The presumption against double portions is an evidential presumption arising in the absence of evidence of the testator's actual intention. Where each gift can properly be described as a 'portion', the presumption can be rebutted if the known circumstances indicate that the purposes of the lifetime and testamentary gifts were substantially different. If there is a significant difference between the two gifts, the question of ademption depends on whether the donor could reasonably have considered the two gifts to be similar.
Hotchpot Rule
The consequence of upholding the presumption against double portions is that the child who received the lifetime gift must bring its value into account when dividing the estate. Practitioners will be familiar with the term bringing into 'hotchpot' whereby the value of the adeemed testamentary gift is deducted from the child's share of the estate.
How these principles might arise in practice
Example 1
The testatrix leaves her estate equally to her two adult sons (A&B). In an accompanying statement to her Will, she expresses her wish to treat her sons equally, but also expresses her wish that son A be able to buy a house as he has less financial resources then his brother. Son A and his wife live with the testatrix and give up their jobs to provide care for her due to her deteriorating health. She later makes substantial payments to son A (c. £400,000), which were intended to cover living expenses and support him and his family while caring for the testatrix. Son B claims that the presumption against double portions arises and that the inter vivos payments should be brought into hotchpot.
There can be little doubt that the testamentary gift constitutes a portion because of the known purpose of the gift; to buy son A a house. However, the presumption against double portions would likely not apply, as the lifetime payments were not intended to make permanent provision or establish son A in life. Rather, the payments were made to enable son A and his family to support themselves in circumstances where they had given up their jobs in order to look after the testatrix at home.
Example 2
A testator leaves their estate equally to four minor children, with the intention of providing them with a private education and university attendance. The testator makes substantial payments for school fees for two of the children, but not for the other two. In this scenario, the presumption against double portions would likely arise, as the payments for school fees were intended to set up those children in life and is not rebutted because there is no evidence to suggest that the testator intended to provide for the two children twice.
Practical considerations
Non-contentious and contentious practitioners alike need to be alert to these complex legal concepts. Determining the intention behind lifetime and testamentary gifts is key. It highlights once again the importance of taking detailed instructions from the testator and recording them in the Will file. More often than not cases are not clear cut. Complications can arise, for example, when a testator's lifetime gifts are intended to benefit their grandchild through their child.
Testators would be well advised to maintain a record of any lifetime gifts and their reasons for making them. The inclusion of specific clauses in the Will directing the treatment of lifetime gifts in the division of shares can also help prevent a costly legal argument later down the line.