Trusts and Estates

Ca. Trs. & Estates Quarterly 2017, Volume 23, Issue 1

THE PLANNING, ADMINISTRATION, AND LITIGATION OF THE "HEMS" STANDARD

By Krista Conover, J.D.*, Erin N. Kolko, Esq.**, and Christine M. Kouvaris, Esq.***1

I. INTRODUCTION

The acronym "HEMS" stands for health, education, maintenance, and support, and is referred to as an "ascertainable standard" in the Internal Revenue Code.2 This standard was created in the Internal Revenue Code of 1954, which overhauled, reorganized, and expanded the 1939 Code, and provided the organizational structure that our current Internal Revenue Code maintains today.3 When dealing with a trust subject to this distribution standard, practitioners must be mindful of the body of law that defines the standard. This article is divided into three sections. This first section considers the drafter’s perspective, exploring the creation of the HEMS standard and examining its interpretation by the courts, particularly with respect to whether language set forth in a trust qualifies for the standard’s tax treatment. The second section considers the HEMS standard from the perspective of a trustee, examining how the standard is applied in trust administration, and how a trustee may make distributions to a beneficiary when a trust instrument contains the standard. The last section focuses on the HEMS standard from a litigation perspective, addressing both how a trustee may protect its distribution decisions and how a beneficiary may challenge the decisions under an instrument governed by the standard.

II. THE ASCERTAINABLE STANDARD,"HEMS" ? A STATUTORY CREATION

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