NEW FRONTIERS IN TRUST DISTRIBUTIONS: WELL-BEING
Many trust documents allow the trustee to make distributions to beneficiaries in accordance with what's known as the "HEMS" standard. "HEMS" here stands for...
H-ealth
E-ducation
M-aintenance
S-upport
There is a tax reason to employ this standard in some situations, but setting that aside, I'm not sure these four terms are as comprehensive as they need to be. For instance, an increasing number of wealthy families are realizing that passing their assets down to future generations also requires a lot of thought and attention to make sure those future generations are placed in a position to thrive. I call this "human capital" -- in addition to an inheritance, you are passing down knowledge (of financial matters, of your values, of your family's history) to the people who inherit your money. The hope is that your beneficiaries will develop a strong sense of purpose ("drinking margs poolside all day every day" doesn't count).
You may note that human capital doesn't fit neatly within any of the HEMS standards, so a trustee may not feel like they can make distributions to address this issue. However, as is so often the case, the fine folks of Delaware have a solution. Last year they added §3345 to Title 12 of the Delaware Code. This section creates a new type of trust - the "beneficiary well-being trust" - and allows trustees to make distributions for what it calls "beneficiary well-being programs.” These programs are aimed at developing the human capital of trust beneficiaries via seminars, family meetings, and the like. Even better, the statute specifically lists the following as valid purposes for distributions:
"(1) Preparing each generation of beneficiaries for inheriting wealth by providing the beneficiaries individually or as a group with multigenerational estate and asset planning, assistance with navigating intergenerational asset transfers, developing wealth management and money skills, financial literacy and acumen, business fundamentals, entrepreneurship, knowledge of family businesses, and philanthropy.
(2) Educating beneficiaries about the beneficiaries’ family history, the family’s values, family governance, family dynamics, family mental health and well-being, and connection among family members."
Hat tip to Fifth Third's trust guru (and actual Delaware resident!) Timothy Powers for bringing this law to my attention.
