Mar 1, 2011 12:00 PM

The dual life of the (un-) ascertainable standard

By Brian K. Duffey & Patrick J. Duffey

Health, Education, Maintenance and Support: the four “chosen words” that make up the “ascertainable standard.” Sometimes abbreviated as HEMS, the ascertainable standard is undeniably a creature of tax law,¹ though it must also operate in the realm of trust. This dichotomy is central to the internal conflict that permeates HEMS and, in fact, defines it. At its core, the ascertainable standard is a line drawn by Congress that differentiates between a beneficiary/trustee² with a general power of appointment over a trust and a beneficiary/trustee without that authority. The effect of the standard is considerable: beneficiaries/trustees that possess a power to appoint trust property that isn't limited by the ascertainable standard must include trust property in their federal gross estate while those whose power is so limited need not.³ The significance of the standard doesn't end there, however. After being deemed “ascertainable” for tax purposes, it must serve as the standard by which trustees must make distributions from the trust. It's at this nexus of tax law and trust law that the testator's intent, the touchstone of all donative law, can be frustrated.

There are two key issues at play here: first, whether the distribution standard is “ascertainable” for purposes of federal tax law and second, what distributions are permitted by that standard under applicable state law. The answers are far from clear and the issue is further obfuscated by the tension inherent in crafting a standard that both effectuates the testator's intent and remains within the boundaries of the Internal Revenue Code. The first hurdle is, of course, the IRC.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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