You may have heard the term “health, education, maintenance, and support” (HEMS) and wondered what it means. HEMS is an ascertainable standard recognized under Sections 2041 and 2514 of the Internal Revenue Code. Estate planners commonly use the HEMS standard to define when and how a trustee may make distributions to a beneficiary. The standard is also frequently used in situations where a beneficiary may serve as trustee of their own trust, while helping preserve certain intended estate and gift tax protections.

Examples of expenses that may fall within the HEMS standard include:

Health: medical bills, health insurance premiums, therapy, dental work, prescription medications, in-home care, and other healthcare-related expenses.

Education: tuition, tutoring, books, school supplies, vocational training, college expenses, and reasonable living expenses while attending school.

Maintenance and Support: housing costs, groceries, clothing, transportation, utilities, childcare, and other expenses necessary to maintain the beneficiary’s standard of living.

While the HEMS standard generally does not permit distributions for purely luxury or extravagant purchases unrelated to the beneficiary’s health, education, maintenance, or support, a trustee could distribute funds to cover the following:

• pay for a child’s private school tuition,
• cover surgery or medical treatment,
• help with rent and basic living expenses during a period of unemployment, or
• pay for reliable transportation needed for work or school.

Tax Benefits of the HEMS Standard

One of the primary advantages of using the HEMS standard in a trust is that it may allow a beneficiary to serve as trustee of their own trust without causing the trust assets to be included in the beneficiary’s taxable estate for federal estate tax purposes. Under Section 2041 of the Internal Revenue Code, a person who has broad authority to distribute trust assets to themselves may be considered to hold a “general power of appointment.”  Consequently, if a beneficiary-trustee can distribute trust property to themselves without meaningful limitations, the value of the trust assets could potentially be included in that beneficiary’s estate at death for estate tax purposes.

The HEMS standard helps avoid this result because distributions are restricted to an ascertainable standard relating to the beneficiary’s health, education, maintenance, and support. Because federal tax law specifically recognizes the above-mentioned categories as sufficiently measurable limitations on a trustee’s discretion, a beneficiary may often serve as trustee and still make certain distributions to themselves without triggering adverse estate tax consequences. For this reason, estate planners frequently use HEMS provisions when drafting trusts. The standard can provide beneficiaries with practical access to trust assets while preserving favorable tax treatment.

When the HEMS Standard Is Most Useful

The HEMS standard is commonly used when the trust creator wants a beneficiary to have some control over trust administration, including the ability to act as trustee of their own trust. In many situations, the standard provides enough flexibility to allow distributions for ordinary living expenses and lifestyle maintenance without granting unlimited access to trust property.

At the same time, the HEMS standard is intentionally limited. If a trust allows a beneficiary-trustee to distribute assets to themselves for any purpose whatsoever, the beneficiary may be treated as holding a general power of appointment, which could expose the trust assets to estate taxation.

To create greater flexibility while still preserving tax protections, trusts are sometimes structured so that the beneficiary-trustee may make distributions to themselves only for HEMS purposes, while an independent trustee may have broader discretion to authorize additional distributions beyond the HEMS standard. This type of structure can balance beneficiary access with long-term tax planning objectives.

Importance of Careful Drafting

It is worth mentioning that careful drafting of HEMS provisions is important since even small wording changes may affect whether the standard qualifies as an ascertainable standard under federal tax law. Broader terms such as “comfort,” “welfare,” or “happiness” may expand a beneficiary’s authority beyond the protected HEMS limitation and could create unintended estate tax consequences. When properly drafted, the HEMS standard can be an effective planning tool that gives beneficiaries meaningful access to trust assets while helping preserve intended estate tax protections.