The price of fairness - why equalisation clauses need careful drafting

Equalisation clauses (commonly known as “hotchpot clauses”) are provisions in a Will that aim to ensure a fair distribution among beneficiaries by accounting for significant gifts the will-maker made to some beneficiaries during their lifetime.

In plain terms, a hotchpot clause typically says that if someone received a significant gift from the deceased during their lifetime, that gift is treated as an advance on their inheritance. When the estate is distributed, the value of the lifetime gift is taken into account by notionally adding it back into the estate and reducing that person’s share accordingly. The aim is to ensure beneficiaries receive substantially equal shares overall when both lifetime gifts and the Will are considered together.

Why use a hotchpot clause?

In NSW, lifetime gifts are not automatically offset against a beneficiary’s share of an estate unless the Will explicitly says so. This means that if, for example, a parent gives one child a significant asset (like a house or a large sum of money) while alive and then dies without including a hotchpot clause in their Will, that child could keep the gift and still claim a full share of the remaining estate.

For many parents who wish to treat their children equally, this outcome may be unintended or seem unfair. A hotchpot clause is a tool to prevent inequality by evening out unequal lifetime gifts.

Estate of Tanner

The Estate of Tanner [2025] NSWSC 1078 is a timely reminder of the potential pitfalls of including hotchpot clauses in a Will if they are not clearly drafted. The decision was recently upheld by the Court of Appeal in Tanner v Tanner [2026] NSWCA 100.

In this case, a mother’s Will included hotchpot clauses and a dispute arose among her children after her death about how to apply one of the hotchpot clauses to divide the estate.

Hilda Tanner (Hilda) had three children – John, James and Susan. During Hilda’s lifetime, John had received a parcel of rural land (the Blandford Property) from Hilda and her late husband. Hilda left a Will giving her estate to her three children in equal shares. However, she added two hotchpot clauses: one stating that any money she had lent or advanced to her son James during her lifetime should be deducted from James’ share, and another (clause 5) stating that the Blandford Property given to John must be treated as an advancement and its value brought into account against John’s share of the residue.

After Hilda’s death, John challenged the hotchpot clause relating to him in Court. Essentially, he argued the Will left him an unconditional one-third of the residue, and that Hilda had no legal power to force him to account for a property that wasn’t part of her estate at death (since the land already belonged to him). In John’s view, the hotchpot clause was ineffective or inoperative.

The core legal question was one of Will interpretation (construction): Should the Will’s gift of the residuary estate in equal thirds be read without any reduction as John argued, or subject to the hotchpot clause that effectively reduced John’s share to account for his prior gift?

The NSW Supreme Court and Court of Appeal both upheld the hotchpot clause and declared that John’s one-third share of the residuary estate must be calculated after taking into account the value of the Blandford Property he had already received, pursuant to clause 5 of Hilda’s Will. In other words, John’s share would be reduced by the prior gift’s value. The Court agreed that Hilda’s clear intention was to equalise her children’s inheritances by offsetting earlier advances. The Court rejected John’s argument that Hilda lacked power to do this, noting that a testator can direct their executor to account for property gifted earlier as a way of adjusting the distribution.

Risks and best practice

While hotchpot or equalisation clauses are enforceable and can promote fairness among beneficiaries, they also bring risks and complexities if not handled carefully:

• Clarity is Crucial: Ambiguous wording can cause misunderstandings and costly litigation, as occurred in Tanner. To avoid this, make the hotchpot intention explicit -for example, state that the residuary gift is “subject to” the hotchpot adjustment, or include the adjustment within the residuary clause itself. Cross-reference related clauses correctly and clearly.

• Specify which gifts and values: A common problem is using vague references to prior advancements. Identify lifetime gifts or loans clearly in the Will (for example, by describing the property or the date and amount of a cash gift) and state how they are to be valued. In Tanner, Hilda’s Will directed that the Blandford Property be valued at its market value at death, or its sale price if sold earlier. Without such guidance, beneficiaries could dispute the value. If the clause relies on personal records maintained by the deceased, ensure those records are complete and accessible to avoid uncertainty.

• Consider simpler alternatives: A hotchpot clause may not always be the best option. Consider alternatives such as adjusting residuary percentages or leaving a smaller share to a child who already received a substantial gift. For example, in Tanner, instead of an equal three-way split with a hotchpot clause, Hilda could have left John a smaller share in her Will. This may achieve the same result more simply, though it can appear less even on the face of the Will. Another option is to equalise gifts during the will-maker’s lifetime where possible to avoid the need for adjustments post-death.

• Beware of family dynamics and legal challenges: Even when clearly drafted, hotchpot clauses can be emotionally sensitive. A beneficiary asked to account for an earlier gift may feel singled out, which can lead to disputes. Clear communication during the will-maker’s lifetime may reduce surprise and resentment, and it is sensible to record the reasons for advancements and adjustments. In contentious cases, it is important to acknowledge that including a hotchpot clause may invite challenge, as in Tanner, causing delay and legal costs.

Conclusion

In summary, hotchpot clauses in Wills are powerful tools to promote fairness when distributing an estate, especially in families where one child has received significant lifetime support. When properly drafted, they are legally effective.

However, careful and considered drafting is essential. An unclear hotchpot clause can lead to confusion and disputes, undermining smooth and fair estate administration. Will-makers and their legal and financial advisers should work together to articulate these clauses in clear, precise terms so there is no doubt about how earlier gifts impact the final distribution. This can help avoid litigation and ensure beneficiaries receive what the will-maker truly intended.

If you wish to include a hotchpot clause in your Will, or are an executor or beneficiary named in a Will with a hotchpot clause, please feel free to contact our estates team for advice and assistance.

Author: Jessica Woodhouse

Contributing partner: Gerard Basha

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.