Different Interests and Powers but Equal Values for Different Children: Allocations, Advancements, Charges, Control Devices, Mergers, Mixing Bowls, and Options

• Author: Jerold I. Horn
• Profession: Lawyer
• Pages: 247-280

247

I. “OVER ALL DESIGN”

As an overall design of benecial enjoyment (“Overall Design”), a parent might want to

treat all children equally (or in some other relationship) in terms of value but to allo-

cate a particular asset (for example, an interest in a business) to a particular child and

to allocate equal (or other) values of other property to other children.

II. SYMMETR ICAL AND HOTCHPOT ARR ANGEMENTS

The property owner might use one vehicle (for example, a revocable trust) to dispose of

assets that are included in his or her gross estate for estate tax purposes. The property

owner might use one or more other vehicles (for example, irrevocable trusts) to dispose

of assets that are not included in the gross estate. Similarly, the owner might use a par-

ticular provision within a vehicle (for example, a revocable trust) to dispose of a particular

asset (such as stock in a family business) and use another provision to dispose of other

assets (such as the residue).

The owner can design each of the vehicles and each of the dispositions to provide

similarly or identically for the same descendant (“Symmetrical Arrangement”). As an

example of the Symmetrical Arrangement, assume two assets, (i) dollars and (ii) stock in

a family business. Additionally, assume that the owner uses a revocable trust to dispose

of each but that the owner disposes of the stock by means of a specic gift to children,

9

Different Interests and Powers but

Equal Values for Different Children:

Allocations, Advancements,

Charges, ControlDevices, Mergers,

Mixing Bowls, and Options

Chapter 9248

per capita, and the owner disposes of the dollars by means of a residuary gift to children,

per capita. If the Overall Design is that all assets shall pass to children, per capita, each

disposition conforms to the Overall Design.

As another example of the Symmetrical Arrangement, assume the same assets, (i) dol-

lars and (ii) stock in a family business. Additionally, assume that an irrevocable trust (that

is, a vehicle that receives the dollars) can use the dollars to purchase the stock from the

revocable trust. The trustee of the irrevocable trust must distribute its assets to children,

per capita. The trustee of the revocable trust uses dollars to pay death costs. The trustee

of the revocable trust must distribute the balance of the assets of the revocable trust to

children, per capita. Again, if the Overall Design is that all assets shall pass to children,

per capita, each share of a child (that is, in this example, the share of the child in the

revocable trust and the share of the child in the irrevocable trust) conforms to the Over-

all Design, and the aggregate of the shares of the child conform to the Overall Design.

Alternatively, the owner can create each vehicle, or any disposition according to a vehi-

cle, to benet a particular descendant differently from how another vehicle or another

disposition benets the descendant. The owner can design each vehicle, or each disposi-

tion within a vehicle, as part of an advancement system known as a hotchpot (“Hotchpot

Arrangement”). A Hotchpot Arrangement tends to conform plural vehicles and plu-

ral dispositions, considered in the aggregate but not separately, to the Overall Design.

According to Webster’s Third New International Dictionary, (unabr. 1993), “hotchpot” means

a throwing into a common lot of property for equality of division which requires

that advancements to a child be made up to the estate by contribution or by an

accounting. Id. at 1094.

According to Compact Oxford English Dictionary, (2002), “hotchpot” means

[t]he blending or gathering together of properties for the purpose of securing

equality of division. Id. at 426.

Even if a disposition differs from another disposition, in amount, time, or subject, a

Hotchpot Arrangement treats each disposition as an advance against the aggregate of

the dispositions to or for the particular beneciary.

A Symmetrical Arrangement is appropriate if the property owner does not want to

require any disposition to deviate (in timing, amount, or subject) from the Overall Design.

If hotchpot language were to apply even though no disposition would deviate from

the Overall Design, the arrangement would have the same substance as a Symmetrical

Arrangement. By contrast, this analysis distinguishes a Hotchpot Arrangement from a

Symmetrical Arrangement. As used in this analysis, Hotchpot Arrangement refers to an

249Different Inte rests and Powers but Equal Values for Dif ferent Children

arrangement that includes both (i) hotchpot language which adjusts for any disposition

that deviates from the Overall Design and (ii) a mandate for the creation of one or more

dispositions which do deviate from the Overall Design.

III. LIMITATIONS AND EXTENSIONS

The deviation of a disposition from the Overall Design can cause the aggregate of the

dispositions to or for a particular child to exceed the dispositions that would occur to

or for the child if each disposition were to conform to the Overall Design. Unless the

deviation is limited or the application of the hotchpot is extended, the deviation of a

disposition can prevent the Hotchpot Arrangement from operating effectively. Stated

differently, if the value of a prior gift or special allocation is less than the prorata por-

tion of value that a particular child represents compared with the value that all of the

children represent, a parent can make the staggered transfers, or otherwise can allocate

property specially to the child, without affecting the value that the particular child, or

any other child, will receive. However, if the value of the prior gift or special allocation

exceeds the prorata portion of value that the particular child represents compared with

the value that all of the children represent, the prior gift or special allocation to the par-

ticular child might increase the value that the particular child receives and reduce the

value that each other child receives.

The concept of the limitation of a special disposition is that the mandate for a dispo-

sition which deviates from the Overall Design shall not occur to any extent that it would

cause the aggregate of the dispositions to or for a particular child to exceed the aggre-

gate of the dispositions to or for the child according to the Overall Design. The concept

of the extension of the hotchpot is that the hotchpot applies as a “charge” against the

dispositions to or for the particular child, in favor of the other children.

IV. SEPARATION OF CONTROL AND ENJOYMEN T

A property owner might care more about whether a particular child is to control an

asset than about whether the child is to benet from the asset. The owner might use

an Overall Design of giving control to one child but giving equal enjoyment to each

child. A control device separates control from enjoyment. It disposes separately of

control, on the one hand, and enjoyment, on the other. A control device can comple-

ment a Hotchpot Arrangement, particularly a Hotchpot Arrangement that includes

the limitation feature or the extension feature. A control device is a mandate that the

property owner imposes.