By Michael Lins of Lins Law Group, P.A. posted in Estate Planning on Friday, January 31, 2020.
In Florida, one of the benefits of having a Revocable Living Trust (“Trust”) is that your Estate can avoid probate. However, despite being a huge benefit, this is not the only reason to have a Trust. Another benefit of having a Trust is that it facilitates your being able to control distribution to your beneficiaries over time. In setting forth the plan for distribution of your estate assets to a certain beneficiary or group of beneficiaries, you can designate particular ages or timeframes when distributions will be made. In the meantime, your assets are held in the Trust and managed by your Trustee.
Often in that type of distribution plan, the Trust will give the Trustee authority to make distributions based on “HEMS”. This stands for “health, education, maintenance, and support.”
A sample Trust provision, including HEMS language, might read as follows:
Upon my death, the trust share to be distributed to any beneficiary hereunder shall be distributed outright if said beneficiary has reached the age of twenty-five (25) years. If a beneficiary has not reached age 25, the trust share of such beneficiary shall vest in interest indefeasibly and shall be held and administered in trust by the Trustee until said beneficiary reaches the age of 25. In the meantime, the Trustee may use as much of the Trust income and principal for the health, education, maintenance and support of the beneficiary as the Trustee, in his or her sole discretion, determines is required. When said beneficiary reaches the age of 25, the Trustee shall distribute outright to the beneficiary all of said beneficiary’s remaining share of the Trust estate.
A HEMS provision gives the Trustee discretionary power to use Trust assets for a beneficiary within these four categories. The usual intention is to make Trust assets available for the beneficiary’s needs without giving the beneficiary “carte blanch” to access them for whatever purpose they wish. In effect, the Trust provisions protect the beneficiary from himself or herself. This can be especially at a young or irresponsible time in the beneficiary’s life. However, the HEMS provision makes sure that if the funds are needed in the meantime, they can be accessed.
The HEMS discretion also allows the Trustee to control how the assets are used for the beneficiary’s needs within these categories. For example, using the above Trust provision, let’s say you die leaving an 18-year old son or daughter as beneficiary. Since your beneficiary has not reached age 25, his or her Trust share will be held and administered by the Trustee. If your beneficiary approached the Trustee and requested funds to buy a car to use while in college, that may be a reasonable expense that the Trustee could honor. A means of transportation could certainly fit within “maintenance and support.” But if your beneficiary asked for money to buy a brand new Lamborghini or Maserati, the Trustee could decline the request as not being reasonable. Instead, the Trustee might offer to purchase a more sensible car…perhaps a used Toyota–both safer and more economical!
When setting up a HEMS provision, some people like to set forth some parameters for the Trustee to follow. This might include a provision defining what is within the scope of “health, education, maintenance, and support.” For example, for education, the Trust might specify that it is to include not only the cost of college tuition, housing, and books but also fraternity/sorority dues or the costs of participating in intramural or other organized college activities. The Trust might define the scope of “health” to include not only doctor and hospital expenses but also the cost of dental and orthodontic services. The Trust might even include within the definition of “health” the cost of maintaining medical insurance for the beneficiary and for paying deductibles and co-pays.
Having a Trust allows you to plan for distribution at an age and in a way that protects your beneficiary. Allowing an 18-year old beneficiary to inherit sizable assets is probably a recipe for disaster! If your Trust pushes the age out to a more reasonable level of maturity, your beneficiary may be less likely to “blow through” his or her inheritance. In the meantime, the HEMS provision can provide for your beneficiary’s basic needs.
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