The HEMS standard is used to inform trustees as to how and when funds should be released to a beneficiary, according to a recent article from Yahoo! News, “What is the HEMS Standard in Estate Planning.” Using HEMS language in a trust gives the trustee more control over how assets are distributed and spent. If a beneficiary is young and not financially savvy, this becomes extremely important to protecting both the beneficiary and the assets in the trust. Your estate planning attorney can set up a trust to include this feature.
When a trust includes HEMS language, the assets may only be used for specific needs. Health, education or living expenses can include college tuition, mortgage, and rent payments, medical care and health insurance premiums.
Medical treatment may include eye exams, dental care, health insurance, prescription drugs and some elective procedures.
Education may include college housing, tuition, technology needed for college, studying abroad and career training.
Maintenance and Support includes reasonable comforts, like paying for a gym membership, vacations and gifts for family members.
The HEMS language provides guidance for the trustee. However, ultimately the trustee is vested with the discretionary power to decide whether the assets are being used according to the directions of the trust.
Sometimes beneficiary requests are straightforward, like college tuition or health insurance bills. However, maintenance and support need to be considered in the context of the family’s wealth. If the family and the beneficiary are used to a lifestyle that includes three or four luxurious vacations every year, a request for funds used for a ski trip to France may not be out of line. For another family and trust, this would be an out of line request.
Giving the trustee HEMS language narrows their discretionary authority enough to help them do a better job of managing assets and may limit challenges by beneficiaries.
HEMS language can be as broad or narrow as the grantor wishes. Just as a trust is crafted to meet the specific directions of the grantor for beneficiaries, the HEMS language can be created to establish a trust where the assets may only be used to pay for college tuition or career training.
Reference: Yahoo! News (Jan. 7, 2022) “What is the HEMS Standard in Estate Planning”
