Most trusts allow for distributions for health, education, maintenance, and support because the IRS and the revenue code see those kinds of distributions as safe. I mentioned the HEMS standards in my last post. In more advanced planning, HEMS may be abandoned in favor of giving an independent trustee broad discretion over distributions. Of course, that requires an independent trustee, an entirely different can of worms.
Despite the wide use of the HEMS standards, there are few broadly accepted definitions of each category.
Today, I want to focus on health. What counts as health?
It isn’t defined in the California Probate Code.
The Restatement, a multi-volume explanation of trust issues written by the American Law Institute, says that “health” merely provides health and medical benefits appropriate to a beneficiary’s standard of living.
When I talk to my clients, I start with a definition from the World Health Organization in 1948. “Health is a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.”
Physical health is what I think most estate planners mean when they use the term health, but that’s only part of the picture.
Mental health is crucial but often overlooked. A while back, a colleague who works in a national trust company told me about a situation. A beneficiary in her 40s asked the trustee to pay for IVF treatment. She had spent years focusing on her career (something strongly encouraged by the trust) and had started feeling anxious and stressed by the idea of creating a family.
The bank’s committees had internal discussions about whether this fits into the “health” standard, but these discussions stretched over a few months. As the bank concluded they would pay for IVF, they got word that the beneficiary’s mental state had deteriorated, and her doctors had put her on suicide watch. She had underplayed the importance of having a family and had become depressed.
Suddenly, the question of her physical health became priority #1. And that risk stemmed from her mental health, which had been affected by an issue that even the bank decided was a “health” issue.
That’s a long story, but the point for me is simple.
We estate planners should not rely on four words the IRS likes. We must get comfortable with questions where no IRS ruling offers an answer. We need to have deeper discussions with our clients about the HEMS standards.
Our clients will thank us. Beneficiaries will (probably) thank us. Trustees definitely will.
