Today’s blog was written by Kelsey Buchmayer, associate with the Ottawa office of Gowling WLG (Canada) LLP

Including an inflation adjustment clause in a Will where the circumstances so warrant can help with achieving fairness. The fairness can be as simple as ensuring monetary values expressed in a Will are brought up to the real dollar value as at the date of death using an inflation factor. A less obvious but impactful way of striving for fairness is by also applying an inflation factor to advances and debts that are brought into account upon the distribution of the estate, also known as hotchpot.

At the simplest level, where a Will uses monetary values, such as for monetary bequests or fixed amounts to be held in trust, it is good practice to ask your client whether they wish such funds to be adjusted to match inflation over time. This was explored in a previous All About Estates blog and can be done in a variety of ways. A general approach is to include a provision within the Will’s interpretation section to ensure that all monetary values expressed or referenced in the Will shall be adjusted from the month and year of the Will to the month and year of the testator’s death in accordance with the Consumer Price Index as published by Statistics Canada. This can be expanded as the context requires, such as indicating a yearly inflation adjustment in the case of a testamentary trust required to make fixed annual payments.

It can go one step further to also address hotchpot clauses. The equalization of advances and loans between parents and their children, a topic recently explored in an All About Estates blog, is an important conversation to have with your client. If your client wishes to strive for even greater equality as among their children, they may also wish to include in their Wills an inflation factor to be applied to any advances and loans made with their children prior to death.

Doing so will ensure that the benefits any child has previously received from the testator (by advancement or loan to be forgiven) is translated from whatever dollar value it was when received into the real dollar value as at the date of death. When the estate is then valued with these pre-death gifts, as one does with a hotchpot provision, all values in the calculation will be in today’s dollars, resulting in fairness and equality in a more precise manner.

The value of advances or debts being brought into account should also be referred to in the clause in the Will addressing inflation. Such amounts would be adjusted from the month and year in which they were initially made by the testator to the month and year of the testator’s death, unless otherwise indicated in the instrument evidencing such advancement or debt.