Support trusts: health, education, maintenance

Wonder

1. Does my trustee have to spend every dollar on me, or can they save for later?
2. Does the trustee have to look at my other income before paying?
3. What happens if the standard of living changes over time?

Explore

1. A support trust lets, or requires, the trustee to pay for a beneficiary’s health, education, maintenance and support, often shortened to HEMS. Unlike a trust giving the trustee open-ended discretion, it ties payments to a measurable standard. The standard can be mandatory, such as ‘shall pay what is needed for support’, or discretionary, such as ‘may pay’, and the exact words matter. HEMS wording is common in US trusts, including trusts for children, for a surviving spouse, and for family members who serve as their own trustee.
2. In US federal tax law, HEMS is called an ‘ascertainable standard’. Under Internal Revenue Code §2041, a power to use trust property for oneself that is limited by an ascertainable standard relating to health, education, support or maintenance is not a general power of appointment. So a beneficiary who is also trustee, and can pay themselves only for those needs, generally does not have the trust property counted in their own taxable estate under that section. Treasury Regulation §20.2041-1(c)(2) says a power for ‘comfort, welfare, or happiness’ is not limited by such a standard.
3. Trust law points the same way. Under Uniform Trust Code §814, in states that adopted it, a person other than the settlor who is both trustee and beneficiary may make discretionary distributions to themselves only under an ascertainable standard. The same section says a trustee may not use a discretionary power to meet a legal duty of support the trustee personally owes someone else, such as their own child. States vary, and some trusts name an independent co-trustee to make other kinds of distributions.
4. ‘Support’ and ‘maintenance’ are read more widely than bare survival. The federal tax regulation treats the two words as meaning the same thing, says they are not limited to the bare necessities of life, and lists ‘support in his accustomed manner of living’ and ‘education, including college and professional education’ as ascertainable standards. Many trust documents refer to the beneficiary’s accustomed standard of living. In close cases, the document’s exact words and the state’s court decisions decide what a standard covers.
5. A key question is whether the trustee must consider the beneficiary’s other income and assets before paying. Some documents say so directly; others tell the trustee to ignore them, or leave the question to the trustee. When the document is silent, the answer depends on state law and court decisions, which differ. A beneficiary with a good salary may receive less under one wording than under another. Writing down what was considered for each request helps a trustee show that the standard was followed.
6. Support wording can matter for means-tested benefits. For US Supplemental Security Income (SSI), the Social Security Administration counts trust principal as the beneficiary’s resource if the beneficiary can revoke the trust or direct the use of the principal for their own support and maintenance. Other trust terms can also affect benefits, and Medicaid rules differ by state. Trusts designed for relatives who receive or may need such benefits, such as special needs trusts, are covered in Level IV.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• 26 U.S.C. §2041 (powers of appointment)
• 26 CFR §20.2041-1 (ascertainable standard, (c)(2))
• 26 CFR §25.2514-1 (gift tax counterpart, (c)(2))
• Maine Uniform Trust Code §814 (discretionary powers; a state enactment)
• SSA POMS SI 01120.200 (trusts as resources for SSI)