What Is the HEMS Standard in Estate Planning? Definition and Examples

The HEMS standard is used in estate planning to guide trustees in how and when they should release funds to a beneficiary. By including HEMS language in a trust, you can exert greater control over how the trust’s assets are ultimately spent and for what purpose, including health and education expenses. This can be especially useful if a trust’s beneficiary is young or financially inexperienced.

A financial advisor who offers estate planning services can help you set up a trust that meets the needs of you and your beneficiaries.

What Is a HEMS Provision?

HEMS is an acronym that stands for health, education, maintenance and support. When assets are distributed to the beneficiaries of a trust with a HEMS provision, the money can only be used for specific needs tied to the beneficiaries’ health, education or living expenses. These may include college tuition, mortgage and rent payments, medical care and health insurance premiums.

Here’s a look at some examples of HEMS distributions:

While a HEMS provision gives a trustee guidance on how assets should be distributed (the trustee ultimately has the discretionary authority to decide whether an expense qualifies). This can be relatively straight forward when it comes to the health and education components of a HEMS provision, but the maintenance and support category can be more ambiguous. That’s because maintenance and support can include distributions that allow a beneficiary to maintain their typical standard of living, which can even include travel and vacation expenses.

Benefits of HEMS

Having a HEMS provision in your trust can be beneficial in several ways. First, by limiting what types of distributions are allowed, you’ll better ensure that the assets held in the trust are not spent frivolously. This can be especially important if the trustee is also a beneficiary. By establishing certain restrictions, the odds of the trust being drawn down too quickly diminish.

Second, by giving the trustee guidelines for how assets should be distributed to beneficiaries, you’ll make their job that much easier. A HEMS provision can narrow the vast discretionary authority that some trusts endow their trustees and can help them better preside over the entity.

Lastly, HEMS language isn’t one size fits all. It can be as specific or broad as you like. For example, you can establish a trust whose assets can only be distributed to pay college tuition or the long-term care of a sick or disabled beneficiary. Another grantor may not include such specific language and instead give the trustee broader discretion to allocate assets for any health, education, maintenance and support expenditures.

Other Considerations of HEMS

While the HEMS standard provides clear guidance for how trustees can distribute trust assets, it’s not a one-size-fits-all solution. Trustees and beneficiaries should understand both the flexibility and the limitations that come with using this framework in estate planning.

Even though HEMS gives structure, it still allows for trustee discretion. For example, what qualifies as “maintenance” or “support” can vary depending on a beneficiary’s lifestyle and financial needs. A trustee must use good judgment and act in the beneficiary’s best interest while adhering to the intent of the trust creator, which can sometimes lead to interpretation challenges.

For grantors (the individuals creating the trust), HEMS strikes a balance between control and flexibility. It limits excessive spending or misuse of funds but still allows trustees to respond to genuine needs. However, if a grantor wants tighter restrictions or broader spending authority, additional provisions may need to be included in the trust document.

Using the HEMS standard can help protect a trust from being included in the beneficiary’s taxable estate, since distributions are limited to specific purposes. However, poorly drafted language or overly broad definitions may invite scrutiny from the IRS or lead to disputes among beneficiaries. That’s why it’s essential to work with an experienced estate planning attorney who can ensure the trust meets both tax and legal requirements.

Bottom Line

The HEMS standard is a powerful tool for balancing oversight and flexibility in estate planning, but its effectiveness depends on how it’s written and managed. Understanding its limitations, maintaining clear communication between grantor and trustee, and seeking professional guidance can help ensure that the trust operates smoothly and serves its intended purpose for generations to come.

Estate Planning Tips

• Estate planning can be a complicated and stressful proposition for someone without proper guidance. A financial advisor who specializes in estate planning can help you create a plan that will ensure your loved ones are taken care of when you’re gone. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you have a considerable amount of assets, it’s important to familiarize yourself with the laws surrounding estate and gift taxes. While the federal government charges both estate and gift taxes, some states have their own death taxes that you’ll want to consider while planning your estate.

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