How does a trustee decide when, and how much, money should be distributed to a Trust Beneficiary? Interesting that you should ask.
The Trust document usually spells out a distribution standard. These can vary widely, from giving the Trustee unlimited discretion to calling for mandated distributions. The most common standard calls for the Trustee to distribute funds for the beneficiary’s Health, Education, Maintenance, and Support.
This is known as the HEMS standard. It is called an “ascertainable standard” because a Court could interpret it enough to compel the Trustee to make a distribution. From there, things get murky. There is no statutory definition for HEMS, so guidance comes from other terms in the Trust and from court decisions.
“Health” can mean regular medical treatment, health-related home renovations, dental treatment, gym and Golf memberships, and health insurance. “Education” can mean private school tuition, college, graduate and post graduate school, tutoring, books, computers, day care and school clothes. “Maintenance” and “Support” are usually interpreted as synonymous. They can include mortgage payments, a down payment on a home, vacations, rent, charitable gifting, legal fees, and support of family members.
No matter what the standard, the relationship between a Trustee and a beneficiary is, at best, tenuous. A first generation Beneficiary is usually involved in establishing the distribution standard, and compliant with the Trustee. A second generation Beneficiary may understand the reasoning behind the standard, and give only a little push-back as long as the Trustee is reasonable.
A third generation Beneficiary wants all of the money now, without strings attached, and will go to great lengths to make life unbearable for everyone concerned. Or so it seems. If you are the beneficiary, the Settlor or the Trustee and have any questions about a Trust, give us a call.
Virginia Hammerle is a Board Certified Civil Trial Attorney by the Texas Board of Legal Specialization and an
Accredited Estate Planner by the National Association of Estate Planners & Councils. She can be contacted at
[email protected] The information contained in this article is general information only and does
not constitute legal advice. ©2015