What trust funds can and cannot be used for comes down to one document: the trust instrument the grantor signed. Most trusts limit spending to four categories known by the acronym HEMS, which stands for health, education, maintenance, and support. Anything that fits inside those categories, and inside any specific instructions the grantor added, is fair game. Anything outside them is not, no matter how reasonable the request sounds.
The HEMS standard appears in so many trusts because it does double duty. It gives the trustee clear guidance on what to approve, and under 26 U.S.C. ยง 2041 it keeps the trust’s assets out of the trustee’s taxable estate.1Office of the Law Revision Counsel. 26 USC 2041 – Powers of Appointment That tax carve-out is also what allows a beneficiary to serve as their own trustee without pulling the trust into their estate, as long as their power to distribute is limited to HEMS.2eCFR. 26 CFR 20.2041-1 – Powers of Appointment; In General
What Trust Funds Can Be Used For Under HEMS
The four HEMS categories are broad enough to cover most legitimate needs but narrow enough to keep the trust’s tax protection intact. The measuring stick throughout is the beneficiary’s accustomed standard of living. What counts as “maintenance” for someone raised in a wealthy family looks different from what qualifies for someone from a modest background.
Health
Health distributions cover medical costs from routine to catastrophic: insurance premiums, doctor visits, prescriptions, dental and vision care, and mental health treatment. Elective procedures a doctor recommends generally qualify even when they aren’t strictly emergencies.
Long-term care is where health spending adds up fast. A home health aide at a standard 44-hour week runs about $80,000 a year nationally. A semi-private nursing home room costs roughly $315 per day, or about $9,600 a month, and a private room runs around $355 per day. A trust with HEMS language gives the trustee unambiguous authority to pay those bills. Some trust documents also authorize alternative therapies like acupuncture or chiropractic care, but that depends on the specific wording the grantor used.
Education
Education goes well beyond four-year college tuition. Graduate school, professional certifications, vocational training, and study-abroad programs all qualify. Covered costs typically include tuition, fees, books, supplies, room and board, and transportation tied directly to attending school. Total cost of attendance at many universities easily exceeds $30,000 a year for in-state undergraduates, and private institutions can run two to three times that.3University of Texas at Austin. Cost of Attendance – Texas One Stop
Some trusts stretch education to cover a laptop for coursework or travel to academic conferences. The test is whether the expense has a direct, reasonable connection to the beneficiary’s studies. A semester abroad qualifies easily; a vacation loosely framed as “educational” does not.
Maintenance and Support
Maintenance and support is the broadest category and the one that generates the most disputes. It covers day-to-day living: mortgage or rent, property taxes, homeowners insurance, utilities, groceries, clothing, and transportation. The purpose is to preserve the beneficiary’s accustomed standard of living, not upgrade it.
Because the benchmark is relative, the same request can qualify for one beneficiary and not another. For someone who grew up taking multiple international trips a year, funding a ski vacation may fit squarely within maintenance. For a beneficiary from a more modest background, the same request looks like a luxury that falls outside the standard. Club memberships, gym fees, and reasonable gifts to family can qualify when they match the lifestyle the beneficiary was accustomed to before the trust was funded.
What Trust Funds Cannot Be Used For
The grantor’s instructions set the outer boundary. Any request that falls outside them is invalid, however reasonable it sounds. A trust limited to HEMS cannot fund a vacation home purchase simply because the beneficiary wants one, and a trustee who approves that distribution faces personal liability for breaching their fiduciary duty.
Public policy imposes a second layer of limits. Trust provisions that encourage illegal activity or reward destructive behavior are unenforceable. The classic example is a distribution conditioned on the beneficiary getting a divorce; courts have consistently refused to enforce those, treating them as improper incentives to break up a marriage. A trustee also cannot use trust funds to pay criminal fines, bail connected to ongoing illegal conduct, or anything else that would make the trust complicit in unlawful activity.
Many trust documents add specific prohibitions on top of HEMS. A grantor worried about risk-taking might bar distributions for extreme sports or speculative investments. Another might prohibit luxury vehicles or second homes. The trustee has no authority to override those restrictions, and a trustee who disregards them can be removed by a court and held personally liable for any losses.
Spendthrift language, which appears in most well-drafted trusts, closes another door. A beneficiary cannot pledge, assign, or hand over trust assets to someone else before receiving a distribution, and most creditors cannot reach trust property to satisfy a judgment against the beneficiary. A few “exception creditors” can sometimes break through: a spouse or child seeking support, providers of essential goods or services, and government entities collecting unpaid taxes. The exact rules vary by state.
Mandatory vs. Discretionary Distributions
Whether a given expense gets paid often depends less on the category and more on how the trust grants distribution authority. Trusts use two basic structures, and many combine them.
Mandatory distributions require the trustee to pay out specific amounts on a set schedule. The most common version directs the trustee to distribute all net income the trust generates, usually quarterly or annually. The trustee has no choice. Even if the beneficiary is spending recklessly or facing a lawsuit, the check goes out. The trust document controls, and the trustee’s personal opinion about whether the beneficiary needs the money is irrelevant.
Discretionary distributions give the trustee the power to evaluate each request and decide whether it fits the trust’s purpose. This is where HEMS does its heaviest work. The trustee reviews the request, weighs the beneficiary’s other resources and actual needs, and then approves or denies. Most trustees want documentation: medical bills for health, tuition invoices for education, mortgage statements for maintenance. Discretionary trusts also offer stronger protection against creditors and spendthrift beneficiaries, because the assets stay inside the trust until the trustee affirmatively releases them.
Hybrid structures are common. A trust might require distribution of all income (mandatory) while giving the trustee discretion over whether to invade principal for larger needs. That gives the beneficiary a predictable income stream while preserving the principal for genuine emergencies or major life expenses.
Milestone and Age-Based Payouts
Many trusts authorize one-time payouts tied to specific life events: graduating from college, getting married, starting a business, or hitting a certain age. The trustee’s role is usually verification. Once the beneficiary proves the milestone occurred, the money goes out.
Educational milestones might trigger a lump sum for post-graduation expenses or student debt. Business provisions commonly require a formal business plan and proof that the entity is legally organized before startup capital is released. A homeownership provision might fund a down payment once the beneficiary qualifies for a mortgage on their own.
Age-based distributions work differently. Instead of rewarding achievement, they release wealth in stages as the beneficiary matures. A common structure distributes one-third of the principal at 25, half the remainder at 30, and the balance at 35. Staggering prevents a young beneficiary from receiving a windfall that could disappear in a few years. Grantors less worried about that risk sometimes set a single distribution age and leave it at that.
The Tax Side of Distributions
Beneficiaries often assume everything that comes out of a trust is tax-free. That is not how it works. Distributions of trust income are generally taxable to the beneficiary; distributions of principal generally are not.
The mechanism is distributable net income, or DNI, which is essentially the trust’s taxable income for the year with several adjustments.4Office of the Law Revision Counsel. 26 USC 643 – Definitions Applicable to Subparts A, B, C, and D When the trust distributes money, it deducts the distribution up to the DNI limit,5Office of the Law Revision Counsel. 26 USC 661 – Deduction for Estates and Trusts Accumulating Income and the beneficiary reports that same amount as income.6Office of the Law Revision Counsel. 26 USC 662 – Inclusion of Amounts in Gross Income of Beneficiaries Beneficiaries receive a Schedule K-1 each year showing their share of trust income by type: interest, dividends, capital gains, and other categories. Each type keeps its character on the beneficiary’s return, so qualified dividends inside the trust stay qualified dividends on the K-1.7Internal Revenue Service. Instructions for Schedule K-1 (Form 1041)
Distributions of principal generally carry no income tax consequences for the beneficiary. If a milestone distribution releases $50,000 from corpus in a year when the trust had no DNI, the beneficiary receives $50,000 tax-free. Income left inside the trust gets taxed at the trust’s own compressed rates, which hit 37% at just $16,000 of taxable income for 2026.8Internal Revenue Service. Revenue Procedure 2025-32 That is why trustees and advisors usually push income out to beneficiaries rather than letting it accumulate.
If a Trustee Says No
Beneficiaries who believe a trustee is wrongly withholding a distribution have options, though the path depends on the type of distribution. For mandatory distributions, the analysis is straightforward: if the trust requires the payment and the trustee hasn’t made it, the beneficiary can petition a court to compel it.
Discretionary denials are harder to overturn. Courts defer to the trustee’s judgment and will not substitute their own view of what’s appropriate. But that deference has limits. A beneficiary can succeed by showing the trustee acted in bad faith, refused to consider the request at all, or applied criteria the trust document does not support. A trustee who reflexively denies requests without reviewing documentation is vulnerable to a breach-of-fiduciary-duty claim.
Before going to court, beneficiaries should use their right to information. Most state trust codes require the trustee to provide annual reports showing trust assets, income, disbursements, and the trustee’s compensation. Beneficiaries can also request a copy of the trust document, at least the portions describing their interest. A trustee who refuses to share basic accounting is often signaling a deeper problem, and that refusal itself can support a court petition.