Making Distributions

The HEMS Standard

If you have read your trust document, you have probably encountered the phrase "health, education, maintenance, and support." These four words, known as the HEMS standard, are the most common distribution framework in American trust law. They define the boundaries of what you can distribute and, just as importantly, what you cannot.

HEMS is what attorneys call an "ascertainable standard." It is specific enough that a court can evaluate whether a distribution was appropriate, but flexible enough to accommodate a wide range of beneficiary needs. The IRS recognizes HEMS as a safe harbor, meaning that a trust limited to HEMS distributions will not be included in the beneficiary's taxable estate simply because the beneficiary also serves as trustee.

What Each Word Covers

• Health: Medical expenses, dental care, prescription medications, mental health services, health insurance premiums, long-term care, rehabilitation. This category is broadly interpreted and generally includes anything related to physical or mental well-being.
• Education: Tuition at any level (K-12, undergraduate, graduate, professional), books and supplies, room and board while attending school, tutoring, educational travel. Some trusts also cover vocational training and professional development.
• Maintenance: The cost of maintaining the beneficiary's standard of living. This is the most flexible category and includes housing costs, utilities, food, clothing, transportation, and basic living expenses. The benchmark is typically the standard of living the beneficiary enjoyed during the grantor's lifetime.
• Support: Broader financial support that ensures the beneficiary's well-being. This can overlap with maintenance but may also include things like insurance premiums, reasonable professional fees, and expenses related to employment or career development.

Discretionary vs. Mandatory Distributions

Trust documents use two fundamentally different approaches to distributions, and understanding the difference is critical to your role.

A mandatory distribution is one the trustee must make. If the trust says "the trustee shall distribute all net income to the beneficiary quarterly," you have no discretion. You must distribute the income, period. Failure to do so is a breach of your duty.

A discretionary distribution gives you judgment. If the trust says "the trustee may distribute principal for the beneficiary's health, education, maintenance, and support," the word "may" means you decide. You evaluate the request, consider the beneficiary's needs, weigh the impact on the trust and other beneficiaries, and make a decision. You can say yes. You can say no. You can say yes to part of the request. The trust is giving you authority to use your judgment.

With discretionary distributions, the most important thing you can do is be consistent. If you approve a $5,000 distribution for one beneficiary's dental work, you should be prepared to approve a similar request from another beneficiary in a similar situation. Inconsistency is the fastest path to a lawsuit.

Documenting Every Distribution

Every distribution you make should be documented with the following information:

1. The date of the distribution
2. The amount distributed
3. The beneficiary who received it
4. The trust provision that authorizes the distribution
5. The purpose of the distribution (which HEMS category it falls under)
6. Any supporting documentation (medical bills, tuition invoices, etc.)
7. Your reasoning for approving or denying the request

This documentation serves two purposes. It protects you if a beneficiary or court later questions the distribution. And it creates a consistent record that demonstrates you are exercising your discretion thoughtfully, not arbitrarily.

When to Say No

Saying no is part of the job. A beneficiary who wants trust funds for a luxury vacation, a speculative investment, or a lifestyle that far exceeds what the trust was designed to support may not qualify under the distribution standard. The trust was not created to fund every wish. It was created to provide for specific needs.

When you deny a request, do it respectfully and in writing. Explain which trust provision governs the decision. Be specific about why the request does not meet the standard. This is not about being punitive. It is about being faithful to the grantor's intent and preserving the trust for all beneficiaries, current and future.