Trusts commonly provide that distributions may be made for the "reasonable maintenance, comfort and support" of the beneficiary. These are often part of the so-called "HEMS" standard -- "health, education, maintenance and support" -- that the Internal Revenue Service has deemed to create a safe harbor. If distributions are limited to this standard, they will not be deemed to belong to the trustee when she dies. But what do these words really mean?
The case of Harootian v. Douvadjian (80 Mass. App. Ct. 565, October 4, 2011) helps answer this question, and the answer is that these words give very wide discretion to the trustee. Andrew H. Ansbigian left a trust for the benefit of his wife, Beatrice, and also named her as trustee. The trust provided that she could make distributions for her own "support in reasonable comfort and maintenance."
George Harootinian, remainder beneficiary of the trust and successor trustee to Beatrice, sued the executor of Beatrice's estate for the return of $214,038 which he claimed was misspent because Beatrice had other resources to pay her bills.
The Court rejects this claim, following other cases that have held that similar language permits the use of trust funds for the beneficiary's support unless it also contains limiting language, such as "when in need" or "if necessary."
Without the requisite qualifying language in Arthur's trust, Beatrice was not required to use her own assets before invading the trust principal to pay for her support. The plaintiff cites to no authority for the proposition that the word "reasonable," appearing in the trust before "comfort and maintenance," meant that Beatrice should have used her own assets so as to preserve the trust principal for the remainder beneficiaries.
This still leaves the question as to what is "reasonable." The court finds that this "is measured by reference to her standard of living before she became a beneficiary of the trust." In this case, the plaintiff had the burden of proving that the expenditures did not meet this standard, and he failed to do so. Beatrice's disbursements on her own behalf are here upheld on appeal.
This means that including the HEMS standard in a trust is not much of a limitation on how the trust funds will be spent for the beneficiary. If the grantor wants the funds only to be used when they're absolutely necessary to maintain the beneficiary's standard of living, he can either put that language in the trust or appoint an independent trustee who may be more likely to curtail expenditures than the beneficiary herself.
With husband's and wives in first marriages, this may not be necessary, since everything likely will pass to the same ultimate beneficiaries. But in the case of a second marriage, or where the surviving spouse marries again, it may well be important to put these protections in the trust.