Feb 09, 2023

Custom tailor your estate plan with HEMS

In the world of haute couture and bespoke tailoring, hems define the form and fit of the fabric, bringing the designer’s artistic vision to life…a personalized fashion statement.  A taking in here, a letting out there, and some finishing touches is the difference between off-the-rack and a garment made just for you.

HEMS are equally important in estate planning. Health, Education, Maintenance, and Support (HEMS) is the most common distribution scheme incorporated into trust agreements. It is recognized by the IRS and courts as way of categorizing asset disbursements, while not destroying the underlying benefits trusts provide.

HEMS has time-tested standards a trustee can follow and avoid trouble in terms of violating fiduciary duties regarding distributions. But the HEMS standards are broad, essentially leaving most trustees without any depth of guidance as to the spirit and intent of the estate. We see this as a missed opportunity.

In our firm, we help turn estate planning documents into a personalized legacy statement in part through a structured and guided conversation about HEMS.

John A. Warnick | Founder, Purposeful Planning Institute

A trust can operate as an ATM machine, dispensing distributions whenever a beneficiary makes a demand. Or a trust can encourage and empower beneficiaries to pursue their dreams and find lives of significance.”

Done properly, a thoughtful conversation about HEMS is an opportunity for you to impart values and wisdom to your beneficiaries, and guidance to your trustee, so that your estate assets are more than just an ATM.

Here’s how to turn an estate plan into a personalized legacy statement.

Your estate plan is too important for boilerplate documents. It’s like mass-producing an off-the-rack garment with no custom tailoring.

We guide you through a step-by-step process that begins with some very broad questions about the ways you would like to support your beneficiaries:

  • Lifestyle
  • Real Estate
  • Weddings and Funerals
  • Education
  • Family Reunions
  • Charitable Gifts
  • Medical Expenses
  • Cosmetic Surgery
  • Financial Issues
  • Bucket List travel and experiences

You want your estate to be a positive influence in the lives of your beneficiaries.  Better understanding your “why” will support your trustee’s job of “how.” 

From there, we get more specific and ask you to put distributions into Green, Yellow and Red zones.

We utilize the Purposeful Planning Institute’s Trust Distribution Road Map to support these conversations.  Green Zone distributions are absolutely permitted, and a trustee should feel encouraged in making a green zone distribution. College tuition, monthly allowances, primary residence down payment or rent payments are typical disbursements here.

Red Zone distributions are never permitted and a trustee who makes a Red Zone distribution could face consequences for violating their fiduciary responsibilities by going against your stated wishes.

The Yellow Zone distributions are the most challenging for trustees. They must exercise discretion in deciding whether to make a Yellow Zone distribution. And without your guidance, they will have to make judgment calls relative to your intentions. That’s why it’s so important for you to provide clear instructions.

This can help avoid the following common scenario:
One day a beneficiary thoughtfully asks the trustee for assistance and the trustee has to say: “I’m sorry. That isn’t covered by the HEMS language in the trust agreement.” The beneficiary normally responds: “But I know this is something my parents (grandparents) would have wanted me to do”. The trustee may think: “Oh, I wish his/her parents (grandparents) would have put enabling and clarifying language in the trust agreement to help me know if they really wanted to assist their child (grandchild) in this way.”

Give your trustee greater guidance.

Your trustee has agreed to support you by taking on the responsibility of wisely distributing assets to your beneficiaries.  It is a difficult task.  We ask you to help the trustee by providing greater guidance with a HEMS worksheet describing the types of distributions you would authorize. Then we ask you to assign an ‘approval value’ as in A for Always, P for Probable, M for Maybe, N for Never.

The A’s and the N’s are basically then put into Green and Red Zones, along with any special conditions or circumstances that may influence the decision. For example, you may indicate that in no case may trust funds be used for bail, unless the arrest is for a social cause that you feel strongly about.

The P’s and M’s are the area of greater focus because they are in the Yellow zone and require the trustee to use their discretion and judgment in each discrete situation. That’s why it is so important for you to provide further clarification for the trustee.

Establishing the HEMS guidelines.

Guidelines are just those:  thoughts on various topics to support the trustee who is ultimately responsible for making a distribution. For example, in the Health section of the worksheet, the first few items are health insurance and co-pays, dental and vision care, medical emergency care. These are most likely going to be assigned as Always. But then there are items such as elective and cosmetic surgery, experimental treatments, addiction treatment and recovery programs.  How would you want your trustee to evaluate these?


And what about wellness expenses? Gym memberships, personal trainers, yoga classes, spa treatments and other activities may contribute to your beneficiaries’ health and well-being, but you might consider these to be outside your guidelines for your gift.  What about golf club memberships?  This is your opportunity to make sure your trustee and your beneficiaries understand your position.

Similarly in education, you get to weigh in on more than just the basic education expenses including books, tuition, room, and board. What about travel expenses to and from school, a living allowance while in school and/or during semester breaks? Do you want to support lifelong learning through seminars, webinars, retreats? Is music important to you and do you want to promote it by funding music lessons?  What about going to a music festival?

When you provide your trustee with some divination into how you want these expense requests handled, you make it more likely that your trustee is going to make informed decisions; and your vision and intent for your trust is going to be fulfilled.

It gets even grayer in Maintenance and Support

The last categories deserve even greater attention to detail because they are the least defined and most ambiguous. Maintenance and support can include distributions that allow a beneficiary to maintain their typical standard of living, which can even include travel and vacation expenses, country club dues, car payments and insurance.  How much of your gift should fund your beneficiary’s day to day expenses? 

Thus we ask: how should your trustee deal with beneficiaries who want to exist solely on the support of the estate, to the point of not having a job or any other means of income. Is 100% financially supporting your beneficiary what you envisioned when you established a trust for him/her?

Once you have completed the HEMS exercise, we can incorporate your HEMS standards into the estate planning documentation for a truly personalized legacy statement.  Your estate plan isn’t that collection of documents attorneys are compiling (and those collection of documents aren’t your estate plan). 

After a meaningful exercise and conversation on how you want your assets to benefit your beneficiaries, the documents are then tailored to your wishes. Sure, it’s easier for an estate planning attorney to get out the boilerplate, change the names and dates, bequeath the assets, and leave disbursements to the trustee’s judgment. But in our view, your estate plan can and should be so much more than that.

Having a fleshed-out HEMS provision in your trust supports your beneficiaries helps them understand your hopes for the gift, and your trustee’s decision-making process. Let’s face it, this is a gift.  And gifts made with a sense of hope and imbued with your values can foster gratitude, humility and a sense of family unity across several generations. 

Your beneficiaries can read and understand your explicit wishes for how estate funds should be used.  And, your trustee, who’s taken on this important responsibility, can be a better steward of the estate and minimize friction when it comes to approving distributions.   

Let us custom tailor an estate plan for you.

At Blacksburg Law, estate planning is more than documents; it’s about the plan for your assets, responsibilities, and legacy. We work together to develop instructions for how your important assets are managed if you’re not managing them; how your vital responsibilities are cared for if you’re not capable; and then how you wish to be remembered when you’re no longer narrating the story.

To validate our unique approach, we invite you to look at the more than 150 five-star rated reviews we have on Yelp!

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