HEMS is the acronym for “health, education, maintenance and support” distributions. It’s used most often in trusts. Those named as trustees are the ones who must discern what’s best in terms of property distribution for all things related to a beneficiary’s well-being, comfort, best interests, quality of life assurances and many others. Collectively, it becomes HEMS.
It’s perhaps the most common standard used in setting up a trust. It can help avoid transfer tax problems later on and it can also provide a way to limit distributions, a safety-mechanism, of sorts. While that all sounds nicely contained, yet versatile enough for the trustee to do his job, the fact is, it can be a challenge and one that’s even overwhelming, especially if a trustee’s decision making process is called into question.
We advise our clients to always carefully select their trustees to fill these roles; after all, it can be challenging to find someone who is trusted and who has the ability to stand up for the intent of a trust. A client (who becomes the beneficiary in a trust) must ask himself, “Who do I trust to make the right decisions even if it isn’t the most popular with my family?”
It can be a challenge to even the most assertive and confident people. While they do have the instructions, usually following HEMS standards, that are part of every trust, there can still be those unexpected scenarios that pop up when trying to understand how the standards of those distributions play out.
For instance, consider this case out of Colorado (Matter of Estate of McCart, 847 P.2d 184 (Colo. Ct. App. 1992):
A trust required distributions to a beneficiary that included verbiage for his “maintenance in the social and economic positions” in which he was living at the time the trust was written. It was to ensure he was able to maintain his comfort level and of course, cover his necessities. When the beneficiary tried to pull a large sum of money for what was called an “extravagant” vacation, the courts ruled his decision was evident of “poor judgment” and that it was an abuse of discretion. It said that even though it might have been within his standard of living, those extravagant luxuries were outside the scope of the trust.
Burdens on Trustees
Because no one wants their named trustee to be accused of abusing their authority, it’s very important to think past HEMS. The more specific a trust is, the better it is for the trustee and any beneficiaries. It eliminates confusion, hurt feelings and even court costs (both financial and time). Remember, your trustee is the one who determines whether distributions are made.
Are elective surgeries acceptable, such as a facelift? Does the trust support your grandchildren who are enrolled in college courses if they’re between semesters or is it limited only to the actual time they’re in school? What about grad school? Does the trust cover that or do you intend for it to cover the traditional four year college? Of course, it’s impossible to cover every possible scenario, but you know better than anyone the possible events that could occur and you can make specific determinations within the trust.
The more specific you are now, the better the odds are that liabilities won’t pop up later and land your trustee in a less than ideal position. While trustees are typically provided protection from the courts, the bottom line is no one wants to commit to court hearings, meetings and other events that take away from their daily lives when all they were trying to do was honor the wishes spelled out in the trust.
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