The HEMS Distribution Standard: Administering Trusts During a Recession
When the economy goes through a downturn, as is occurring now during the coronavirus pandemic, where a number of people have lost their jobs, expenses are increasing, and some are also experiencing expensive health crises, trustees are often under more pressure to distribute assets under what is known as the “HEMS” standard, which is a discretionary health, education, and maintenance standard. In other words, where a trust provides that a distribution is needed for the reasonable maintenance, comfort, and support of a beneficiary, if and when that beneficiary makes a request for a distribution even though the source of distributions is decreasing, the trustee then has to figure out if they are authorized to make that distribution.
In general, the trust document controls in figuring this out, although this can still be a difficult task, depending on what the trust document indicates and how it was drafted. As a result, trustees often find it beneficial to consult estate planning attorneys in order to ensure that they are correct in making distributions and they have legally complied with their fiduciary duties.
Deciding Whether To Grant Requests For Distributions
Some of the factors that trustees will need to evaluate in making this decision include:
- The size of the trust;
- Where the financial market is heading;
- The beneficiary’s individual present and future needs, their age, condition, life expectancy, any special health needs, whether they have health insurance, whether the trust can obtain health insurance for them if they do not, any and all source(s) of income, anticipated expenses, any assets, liabilities, tax statements from previous three years, the ability to draw from other sources, such as loans, etc.; and
- The needs of the other beneficiaries, including potential future contingent beneficiaries.
The standard of health generally includes emergency treatment, psychological treatment, routine examinations, dental care, eye care, vision, preventative health care (such as gym memberships), while the standard of education includes graduate school, post-graduate school, law school, medical school, or other professional schools, technical school training, etc., and maintenance typically includes mortgage payments, property taxes, health insurance, continuance of typical vacation patterns, family gifting, and continuation of charitable gifting.
Consult an Experienced Florida Trustee & Fiduciary Representation Lawyer
The trustee should exercise his or her discretion and use this information to consider the present and future needs of the beneficiary making the request, as well as the other beneficiaries. Still, it is also wise to seek assistance from an estate planning attorney in order to obtain legal advice on factors involved in making these distributions, as well as what is needed in terms of evidence to support a finding that the trustee has complied with their fiduciary duties.
The experienced Orlando estate planning attorneys at Gierach and Gierach regularly provide professional assistance to trustees and fiduciaries, helping them carry out their duties and ensuring that everything is legally sound. Contact our office today to set up a free consultation and find out more.