Using HEMS language in your trust gives you more say in how and when your beneficiaries receive their inheritance.
HEMS (health, education, maintenance, and support) rules are used in estate planning to provide wealth distribution guidelines for trustees. Using HEMS language in your trust gives you more say in how and when your beneficiaries receive their inheritance.
Today, we're lifting the veil on the HEMs standard and whether you should use it in your trust. Let's dive right in.
The HEMS ascertainable standard grants your trustee specific distribution powers for assets held in trust for the benefit of your beneficiaries. Sometimes referred to as a HEMS trust, it's not an actual trust but a standard used within a trust.
The standard allows enough flexibility that a trustee has some discretion to do what is in the beneficiary's best interest, considering the trusts' income and remaining assets. The following is a breakdown of the types of expenses that the HEMS standard might include:
Health
Education
Maintenance and Support
The examples above are only some of the expenses commonly justified under the HEMS standard. A trustee must exercise consistency when making distributions to demonstrate to potential lawsuit plaintiffs, the IRS, and the courts that the HEMS standard prevents the beneficiary from having complete control over the trust property.
Here's an example of how the HEMS standard may appear in your trust documents:
"After my death, my trust assets should be distributed when my beneficiaries turn 35. Before age 35, a beneficiary may request distributions from the trust to cover expenses related to their health, education, maintenance, and support."
Of course, you should work with an estate planning professional to customize the exact HEMS language in your trust.
Using HEMS in your estate planning has several advantages.
From a tax perspective, the HEMS standard provides a few key benefits. If the beneficiary of a trust is also the trustee, HEMS prevents the value of the trust assets from being included in the beneficiary's gross estate, helping to manage their federal estate tax bill.
Additionally, trust creators can transfer assets into the trust to decrease their taxable estate as long as they remain the trustee. Trustees must keep detailed records of distributions and the reason for those distributions to avoid tax consequences.
You might be wondering what would happen if your trustee and one or more beneficiaries disagree on what qualifies as a HEMS distribution. If the beneficiary requests a distribution that falls outside of the HEMS guidelines, the trustee must refuse. If the trustee declines a distribution permitted by the trust documents, the beneficiary can file an appeal with the courts.
Your beneficiaries have the right to take legal action if there is a suspected "breach of fiduciary duty" by the trustee. They can petition the court to approve the distribution or remove and replace the trustee.
If your spouse is your trustee, you might be wondering how to ensure your spouse adheres to the HEMS standard so your heirs receive the remainder of your estate. Be as specific as possible when detailing the distributions your spouse can take, and consider naming a co-trustee.
The HEMS standard is often used in trusts, and for a good reason. It gives you more control over the distribution of your assets and provides clear instructions for your trustee. Doing so helps ensure that the trust will continue to provide for and generate wealth for your loved ones for many years to come.
When you build your estate plan with MyAdvocate, you can customize your trust with the HEMS standard. Start protecting your legacy today.
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This post was written by MyAdvocate's team of estate planning attorneys.