In prior blogs, we explained what HEMS means for a Trustee and a beneficiary, and what use of the “health, education, maintenance, or support” standard really covers.
As a practical matter, there isn’t much that won’t be covered by this standard. But, if a distribution is desired to benefit the intended beneficiary, there is wide latitude.
There is no clear bright-line definition of what fits within the HEMS standardand what does not. Such ambiguity, while frustrating one hand, also allows flexibility on the other. The trustee has some discretion in doing what is believed to be in the beneficiary’s best interest. One thing that isn’t covered is a demand by a creditor to turn over funds.
Some types of expenses that the HEMS standards might cover include, but are not limited to:
Health
- eye care (glasses, contact lenses, vision correction surgery)
- allergen cleaning services
- cosmetic surgeries
- alternative medical treatments (e.g., acupuncture, massage therapy, etc.)
- substance abuse rehabilitation programs
- extended vacations or retreats to improve mental health
- health-related home improvements or renovations
- home healthcare or long-term care expenses
- gym, spa, golf club memberships
- exercise equipment
- healthcare supplements
- psychiatric treatments
- handicap-related transport and mobility services and items
- regular healthcare checkups and exams
- emergency and regular medical treatment
- healthcare, dental, vision insurance premiums
- mental health counseling
Education
- tuition for all levels of public or private schools
- graduate or professional degrees including medical school, law school, etc.
- study-abroad programs and related travel expenses
- a beneficiary’s support between semesters or during unpaid internships
- school-related expenses including room, board, books, computer, etc.
- private tutoring
- extracurricular-activity related expenses
- graduation costs, proms, class rings, announcements, robes, etc.
- career training
- daycare for dependents to allow a parent time to attend classes and study
- uniforms and school clothes
Maintenance and Support
- rent or mortgage payments
- down payment on a home
- living expenses and support for a beneficiary engaged in charitable work or low-income vocations that provide social and community benefits
- insurance premiums including life, auto, disability, or homeowner’s policies
- vehicles and related repairs and maintenance
- charitable contributions
- continuation of family gifting for birthdays, weddings, holidays, baby showers, etc.
- property taxes
- legal fees
- supporting family members
- continuation of typical and periodic vacations
- home repair and maintenance
- seed money to start a business
These are just some examples. A trustee must be judiciousness when making distributions to demonstrate to potential lawsuit plaintiffs, judges, and the IRS that the HEMS standard is being utilized. Excessive distributions (such as providing money to purchase and drive a Ferrari when the beneficiary normally drives a Toyota) can backfire. Used properly, the HEMS standard can be a powerful and effective tool to reduce the risk of unnecessary taxation at each generation as wealth passes through the family, and also protect trust property from people who should not have access to it, such as creditors, divorcing spouses, and predators.
If you have questions about what qualifies as an appropriate distribution under the HEMS standard, please reach out to us. We have the experience and knowledge to guide you through these consequential decisions.