Key Takeaways:
- HEMS is a legal guideline used in trusts to limit a trustee’s discretion in distributing funds to beneficiaries.
- It stands for Health, Education, Maintenance, and Support, specifying the purposes for which distributions can be made.
- Understanding HEMS can ensure that trust assets are protected and used appropriately.
When setting up a trust, specifying how trustees can distribute assets to beneficiaries is crucial. An “ascertainable standard,” commonly referred to as HEMS, provides clear guidance to trustees, ensuring that distributions are made responsibly and according to the trust creator’s intentions.
What does HEMS stand for and how does it guide trust distributions?
HEMS stands for Health, Education, Maintenance, and Support. This standard is used in trust documents to provide a clear, measurable criterion that trustees can follow when making decisions about distributing trust assets to beneficiaries. By using HEMS, the trust creator ensures that the trustee uses the trust assets to support the beneficiary’s essential needs and not beyond.
Detailed Analysis:
1. Health:
- Covers Medical Expenses: Trustees can authorize payments for any medical, dental, or psychological treatment that beneficiaries require.
2. Education:
- Schooling Costs: This includes tuition for private schooling, higher education, and any other educational expenses like books, supplies, and room and board.
3. Maintenance and Support:
- General Living Expenses: Maintenance generally covers the beneficiary’s day-to-day living expenses such as food, clothing, and housing.
- Lifestyle Maintenance: Support extends to maintaining the beneficiary’s current standard of living.
4. Advantages of Using HEMS:
- Protection from Creditors: Trusts that distribute assets based on HEMS standards are often protected from claims by creditors, as the distributions are not controlled by the beneficiary.
- Tax Benefits: Trusts utilizing the HEMS standard may enjoy favorable tax treatment, particularly in reducing estate taxes upon the death of the settlor.
- Reduced Abuse: Setting clear standards reduces the risk of abuse of trust funds by either trustees or beneficiaries, ensuring the trust operates as intended.
5. Legal Context and Use:
- IRS Compliance: HEMS standards align with IRS guidelines, making them a safe choice to avoid issues with tax authorities.
- State Laws: While widely recognized, how HEMS is applied can vary by state, and local legal advice may be necessary to implement it correctly.
The use of an ascertainable standard such as HEMS in a trust is a prudent strategy to manage and protect the trust’s assets while ensuring they are used for the beneficiary’s essential needs. This standard helps maintain the purpose of the trust, aligns with legal requirements, and provides clear guidance to trustees.
Get Help Today with Hurban Law, LLC in Lawrenceville, GA
If you’re considering setting up a trust or are managing one as a trustee, understanding and possibly implementing the HEMS standard is crucial. Contact Hurban Law for expert guidance on how to integrate this standard into your trust documents effectively.
