Trusts are an essential part of an Estate Plan. They can protect your privacy, your legacy and your loved ones. And while they’re not necessarily for everyone, most people are surprised to find out there’s a Trust that’s perfect for their Estate Planning goals.
If you have more than $160,000 in assets, own a home, have children or have any investments, you may want to start thinking about a Trust. One important type of Trust is what’s known as a HEMS Trust, which we’re looking at in detail today. We'll cover:
What is the HEMS Provision in a Trust?
A HEMS Trust is actually legally and technically really just a standard that’s included in a Trust.
HEMS stands for: health, education, maintenance and support. Including a HEMS Trust standard is yet another way a Trust can help you facilitate and control the distribution of your estate to your beneficiaries over a longer period of time. A HEMS standard can ensure you’re setting up a distribution plan that’s best for your beneficiaries.
When there is HEMS language in a Trust, you’re giving the person you name Trustee the authority to make distribution decisions that are based on:
Health - Medical/psychiatric treatments, insurance, gym memberships, eye exams/dental care, routine preventative health exams and even, in some cases, alternative forms of medical treatment, and more.
Education - Studying abroad, college costs including housing, dining, books and other expenses, technical school, college tuition and career training, and more.
Maintenance and Support - Cost of living expenses that could include mortgage or rent payments, insurance, property and other taxes, gifting to family members, vacations family members expect and are accustomed too, or anything else that would offer a level of comfort or lifestyle that the beneficiary is used to.
What would not fall into maintenance and support: Distributions that would result in wealth accumulation.
HEMS language can be included in many different types of Trusts. The standards define a Trustee’s responsibilities and abilities to distribute and provide for beneficiaries of a Trust while offering a balance that prevents extravagant distributions that could have a serious impact on the value of an estate.
Other benefits of the HEMS standard could include:
Estate tax benefits
Estate assets being included in a divorce proceeding
Clear definition and clarification about a Trustee’s discretion
Reassurance that young or financially irresponsible beneficiaries will not mismanage a sizeable inheritance
HEMS Trust Example
An example of HEMS language in a Trust would be stating something along the lines of the following.
After your passing, Trust assets should be distributed to any beneficiary over the age of 30. Any beneficiary younger than 30 will have his or her share held in Trust and administered by the Trustee until they reach 30 years of age. During the period the Trust is holding the beneficiary’s shares, the Trustee may distribute income and principal from the Trust for anything he or she deems appropriate for the health, education, maintenance and support of the beneficiary. At the point the beneficiary turns 30 years old, the Trustee can then distribute the remaining shares outright.
How Does the HEMS Standard Affect the Trustee?
How are distributions made out of HEMS Trust? The HEMS provision gives discretionary power to a Trustee to determine which needs the beneficiary has from the four categories (health, education, maintenance and support). It essentially means the Trustee can make distributions from the Trust based on his or her own discretion. How much discretion a Trustee has can be written into the HEMS language within the Trust. It can really be as specific or broad as you want.
Properly preparing your Estate Plan by creating a Trust can alleviate a lot of the stress you may be feeling about providing for your family in the future. Using strategies like the HEMS standard is one way to set up a Trust that you know is going to offer your loved ones the life and security you’ve always envisioned.
Looking for guidance or help preparing the right type of Trust? Trust & Will is here today to help you with all your Estate Planning needs. Reach out to learn more about why we’re the most trusted online Estate Planning service out there.