Page 40 - December 2018 | Cleveland Metropolitan Bar Journal

BarJournal ESTATE PLANNING

JU LY /A UGUST 20 15
feATUre discretionary Trust distributions

Ascertaining the Meaning of “Health,

Education, Maintenance, and Support”

BY CHAD W. MAKuCH

rustees are often granted far his, her, or its “discretion” reaches when Castle, 1998 WL 767453 at *5 (Ohio App. 10
the power to distribute trust distributions are limited to a distribution Dist. 1998) (“Where a settlor places broad
property “in the trustee’s standard, including HEMS. A trustee discretion in the trustee, a court will not
discretion” for a beneficiary’s generally must exercise his, her, or its interfere, so long as the trustees do not act
T “general well-being,” “best discretionary power reasonably, in good in bad faith, abuse their discretion, or act
interests,” “comfort,” or, most commonly, faith, and in accordance with the terms and in a manner inconsistent with the purposes
“health, education, for which the trust
maintenance, and was created.”)
support.” This (internal quotation
“health, education, Sometimes the most challenging omitted); Sherman
maintenance, and v. Sherman, 213
support” distribution responsibility of a trustee is to know how N.E.2d 360, 366
standard is so (Ohio 1966) (“So
common that most far his, her, or its “discretion” reaches when long as a trustee

trustees and other acts in good faith
trust advisers refer distributions are limited to a distribution and exercises sound
to it simply as the discretion, a court
“HEMS standard.” standard, including HEMS. will not substitute
The HEMS standard its judgment for that
is common in trust of the trustee.”).
planning because it A trustee can
is expressly referenced in Internal Revenue purposes of the trust and the interests of and should rely on specific instructions
Code section 2041(b)(1)(A) and limiting the beneficiaries. See Uniform Trust Code § contained within a trust agreement to
distributions to such an ascertainable standard 814; Ohio Revised Code § 5808.14(A). But determine the extent and breadth of the
avoids a number of transfer tax pitfalls. a settlor can grant even broader discretion trustee’s discretion. In the absence of
Sometimes the most challenging to a trustee by using terms such as “sole,” clear instructions, however, a trustee risks
responsibility of a trustee is to know how “uncontrolled” or “absolute” discretion in liability for abusing this discretion when
the trust instrument. The greater the grant making or refusing to make distributions.
of discretion by the settlor to the trustee, For example, if a current beneficiary
the broader the range of permissible requests a distribution for an elective
conduct by the trustee in exercising it. medical procedure, a trustee may be sued
Id. See also, e.g., Tomazic v. Rapoport, 977 for making the distribution (by remainder
N.E.2d 1068, 1072-73 (Ohio App. 8 Dist. beneficiaries whose remainder interest
2012) (“a grant of absolute discretion will would be reduced) or for refusing to make
be controlled by the court if the trustee the distribution (by the current beneficiary
acts in bad faith, dishonestly, or with an who requested the distribution).
We congratulate six of our lawyers for their inclusion
in the Best Lawyers ® for 2019. Five were selected improper motive”); Pack v. Osborn, 881 A closer look at the HEMS standard and
in the area of Medical Malpractice Law-Defendants, N.E.2d 237, 243 (Ohio 2008) (“No court selected cases that determine the trustee’s
highlighting BSPH’s reputation as a leading medical
malpractice defense firm. In addition, Paul W. McCartney can compel a trustee of a pure discretionary discretionary authority limited by a HEMS
was also selected in the area of Insurance Law, C. trust to exercise the trustee’s discretion standard demonstrates that a trustee’s duties
Richard McDonald was selected for Personal Injury
Litigation and Jeffrey W. Van Wagner was named 2019 to distribute income or principal, unless are not always clear, even under frequently
Lawyer of the Year for Health Care Law. the trustee acts in bad faith, dishonestly, employed discretionary distribution
www.bsphlaw.com
or with an improper motive.”); Bushong v. standards like HEMS.
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