Ascertainable Standard

An ascertainable standard is a restriction on a power over trust property, measured by the holder's needs for health, education, support or maintenance. The phrase is the Internal Revenue Code's, not the drafting bar's: section 2041(b)(1)(A) provides that "A power to consume, invade, or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent shall not be deemed a general power of appointment." Section 2514(c)(1) says the same thing for gift tax purposes, substituting the word "possessor" for "decedent." A power fenced by such a standard therefore does not make the person holding it an owner of the property for transfer tax purposes, which is why the phrase appears in almost every trust drafted with taxes in mind.

"HEMS" is a practitioner rearrangement, and the acronym carries three concepts rather than four. The Code's own order is health, education, support, or maintenance. Practitioners reorder the last two into the pronounceable HEMS, and there is nothing wrong with that, but the regulation then removes one of the four. Treasury Regulation 20.2041-1(c)(2) states that "As used in this subparagraph, the words 'support' and 'maintenance' are synonymous and their meaning is not limited to the bare necessities of life." So a reader counting four permitted purposes is counting one twice, and a reader who assumes "support" means subsistence is reading in a limit the regulation expressly disclaims.

The test is measurability, not the words chosen. The regulation supplies it: "A power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them)." The point of the test is that a court could decide whether a given distribution was required or forbidden. A standard that leaves nothing to measure fails, however it is worded.

The regulation names the wording that passes and the wording that does not, which is more useful than any paraphrase. Powers exercisable for the holder's "support," "support in reasonable comfort," "maintenance in health and reasonable comfort," "support in his accustomed manner of living," "education, including college and professional education," "health," and "medical, dental, hospital and nursing expenses and expenses of invalidism" are all given as examples of powers limited by the requisite standard. Against that: "A power to use property for the comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard."

Read those two lists together and the line becomes visible. "Reasonable comfort" attached to support passes, because support is doing the measuring and comfort is describing the level. "Comfort" standing alone fails, because nothing is left to measure against. The same is true of "welfare" and "happiness," which are the two words most likely to appear in a home-drafted instrument written to sound generous.

One further point the regulation settles, and it runs the other way from intuition. "In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised." A trust does not have to make the beneficiary spend their own money first for the standard to hold. Requiring it is a policy choice a settlor may make, and it is not what makes the standard work.

The phrase has a second job that has nothing to do with tax. Most trusts that use it are not worried about a general power of appointment at all. They use it as the distribution standard: the instrument tells the trustee to distribute for the beneficiary's health, education, support and maintenance, and that sentence is the whole answer to what the beneficiary can ask for and what the trustee can be compelled to pay. Here the measurability test is doing different work. It is the reason a beneficiary can go to court over a refused medical distribution and generally cannot over a refused vacation, and it is the reason a trustee who wants room to say yes to more things has to be given a broader standard, at the price of the tax consequence the Code attaches to one.

For how the exclusion is used to keep a surviving spouse from owning the property they benefit from, see the bypass trust entry, which works the argument through in full.

1. The instrument grants a power over trust property, either to a trustee who may also be a beneficiary, or to a beneficiary directly.

2. The instrument fences the power with the statutory words, or with words the regulation treats as equivalent. This is where the drafting matters: "health, education, support and maintenance" is the safe formulation because it is the statute's.

3. The measurability test is applied to the words actually used, not to what the settlor meant. If a court could decide whether a distribution was required or forbidden by reference to the holder's needs, the standard holds.

4. If the standard holds, the power is not a general power of appointment, so it does not pull the property into the holder's gross estate under section 2041 or make its exercise a taxable gift under section 2514.

5. If the standard fails, the power is general, and the tax consequence follows regardless of whether anyone ever used it.

A hypothetical, to show what the standard decides in ordinary life. Priya is trustee of a trust for her own benefit, limited to distributions for her health, education, support and maintenance. She has two bills in front of her. The first is $12,000 of dental work her insurance did not cover. That is squarely within "medical, dental, hospital and nursing expenses," which the regulation gives as an example of a power limited by the requisite standard, so she can pay it from the trust and the payment is unremarkable. The second is $12,000 for an anniversary cruise. That is comfort or happiness, which the regulation says is not limited by the requisite standard, so it is outside the power she was given. If the instrument had instead let her distribute for her "comfort, welfare, or happiness," she could pay for the cruise, and the whole trust would be treated as property she owns for estate tax purposes, because the power would be a general power of appointment. The two bills are the same size. Only the words in the document separate them.

Why instruments use the standard

• It keeps a power over trust property from being treated as ownership for estate and gift tax purposes, under a rule stated in the statute itself.
• It lets a beneficiary serve as trustee of their own trust, which is what families usually want, without that role costing the tax result.
• It gives a beneficiary something enforceable. A refused distribution for a real health or education need can be taken to a court that has a measurable test to apply.
• The safe wording is the statute's own, so a drafter does not have to invent it, and a regulation supplies a list of accepted variants.

What it costs, and where it goes wrong

• Anything genuinely discretionary sits outside it. Travel, a business start, a house deposit and a wedding are not health, education or support.
• Words that sound generous break it. "Comfort," "welfare" and "happiness" are named in the regulation as failing the test, and they are exactly the words a home-drafted instrument reaches for.
• It creates disputes precisely because it is enforceable. A trustee and a beneficiary can disagree in good faith about whether a given expense is support, and the answer depends on the beneficiary's circumstances.
• It does not make a trust tax-advantaged by itself. It only prevents one specific consequence, and every other question about the trust is decided somewhere else.