Mandatory vs. discretionary distributions
Trust distributions fall into two broad categories. Mandatory distributions are required by the trust — the trustee has no choice. Common examples are 'pay all net income quarterly to the spouse' or 'distribute one-third of the principal when the beneficiary turns 25.'
Discretionary distributions leave the trustee with judgment. The trust gives a standard (most often HEMS — health, education, maintenance, and support) and the trustee decides whether a particular request fits. Discretion is power; it is also where most trustee mistakes happen.
The HEMS standard explained
HEMS stands for Health, Education, Maintenance, and Support. It is an 'ascertainable standard' under the tax code, which means it is specific enough that courts and the IRS can evaluate it. Trustees acting under HEMS get favorable tax treatment and clearer judicial guidance.
- Health — medical care, dental, vision, mental health, long-term care, health insurance premiums.
- Education — tuition, books, room and board, reasonable graduate and professional school costs.
- Maintenance — ongoing living expenses consistent with the beneficiary's accustomed standard of living.
- Support — broader living needs including housing, transportation, and reasonable lifestyle costs.
Example
A HEMS request for a $15,000 emergency dental surgery: yes. A HEMS request for a $15,000 destination wedding: usually no. A HEMS request for $15,000 to replace a failing furnace in the beneficiary's home: yes — it falls under maintenance and support.
Knowledge check
A HEMS beneficiary asks the trust to pay for a new boat. What is the right answer?
Do you consider the beneficiary's other resources?
This is one of the most-litigated trust questions. Some trusts direct the trustee to consider the beneficiary's other income and assets before making a discretionary distribution; others direct the trustee to ignore them. Many trusts are silent.
When the trust is silent, the modern default in most states is that the trustee MAY consider other resources, but is not required to. Whatever you do, do it consistently across beneficiaries and document your approach in writing.
A reliable process for handling requests
Run every discretionary request through the same steps, every time. A repeatable process is your defense if a denied beneficiary later complains.
- Receive the request in writing (or write up a phone call and confirm via email).
- Identify the relevant trust provision and standard (HEMS, absolute discretion, etc.).
- Gather supporting documentation (invoice, estimate, medical letter).
- Apply the standard and consider other-resources policy.
- Decide, then communicate the decision in writing with the reasoning.
- File the request, the documents, and the decision together.
Knowledge check
A trustee approves a $12,000 home repair under a HEMS standard but doesn't write down the reasoning. Six months later a sibling beneficiary objects. The biggest exposure is: