Article on But What's an Ascertainable Standard? Clarifying HEMS Distribution Standards and Other Fiduciary Considerations for Trustees

Christian S. Kelso, Esq., published an Article entitled, But What's an Ascertainable Standard? Clarifying HEMS Distribution Standards and Other Fiduciary Considerations for Trustees, 10 Est. Plan. & Comm. Prop. L.J. 1 (2017).. Provided below is an abstract of the Article:

Many of us who grew up in the 1980's and 1990's spent countless hours watching (and rewatching) the action/science fiction film Predator, starring, among others, Arnold Schwarzenegger, Jessie Ventura, and Carl Weathers. In the movie, an alien roams the jungles of Central America, hunting humans for sport. The technologically advanced alien is equipped with a cloaking device that bends visual light such that the alien is rendered invisible to the human eye ... almost.

An abstract legal contrivance, the ascertainable trust distribution standard is much like the Predator's cloaking device. Although it renders the Predator hard to see clearly, you know he is there because you feel his effect. Those who work regularly with trusts talk about ascertainable standards all the time, but their dealings with ascertainable standards usually end at the theoretical level. When digging deeper or asking real-world questions, it quickly becomes apparent that most only have a general understanding of how the ascertainable standards actually function in real life. In day-to-day lives, practitioners tend to skim over the topic, telling their clients that the terms of the trusts include magic words from the tax code which will allow for maximum flexibility without inflicting an adverse tax consequence. And yet, when the client, now acting as trustee of his or her trust, reaches out to ask if he or she is authorized to make a particular distribution, practitioners scratch their heads, wondering why there is no case law on point. And as with the Predator, if practitioners fail to give it respect, they will be sorry.

So, what is the big deal about ascertainable standards? The very term “ascertainable” implies something that is definitive, quantifiable and discoverable. Meriam-Webster defines the verb “ascertain” as meaning “to make certain, exact, or precise” or “to find out or learn with certainty.” And yet, the actual meaning of the most common ascertainable standards in American trust law remain amorphous, undefined, and poorly understood, even by most practitioners.

Originally, this paper was intended to be an examination of relevant case law that would shed light on distribution standards and enable the reader to better understand the limits of their meaning. It was intended to provide a list of permissible and impermissible distributions from a trust with standard language making it subject to one or more ascertainable standards. Exhaustive research, however, has proved this a futile task for two reasons. First, the economics of American jurisprudence make it unlikely that many such cases will ever be reported. A beneficiary may get upset when his trustee will “only” buy him an economical foreign sedan for his support and maintenance, rather than the expensive SUV he wants. But is the beneficiary really going to sue the trustee to get the more expensive vehicle? Even if the beneficiary wins, his or her trust will likely pay the trustee's legal expenses, which will no doubt be substantially more than the cost of any car. Also, if the beneficiary does complain, is his or her case likely to get to the point where it will become legal precedent? In all likelihood, the parties will settle out of court. Thus, the case will likely go unreported and therefore remain unavailable as legal precedent for future disputes.

Second, the high number of variables surrounding any particular trust distribution make every situation as unique as a snowflake. Put simply, when a trustee is acting properly, there are so many factors that go into his or her decision to distribute (or not distribute) that no two instances will ever be the same. Therefore, the few reported cases that do exist can only be illustrative, not determinative, with regard to any future case.

In light of these difficulties, the focus of this paper has shifted somewhat from its original intent. Rather than provide definitive lists of what a trustee can and cannot do, it will provide guidelines for trustees (and the people who advise them). Although this may only be a second best option for a trustee who merely seeks a bright line test, it is hoped that this guidance will nonetheless put him or her at ease with regard to some admittedly tough questions. In particular, this paper will seek to enlighten individual trustees who may not have the legal resources of their corporate brethren. They, and those who advise them, are encouraged to turn to this resource for guidance, both when establishing a trust and also when considering a particularly tough distribution.

Like Blain in Predator, most of us “ain't got time to bleed.” Whether that means overspending on legal fees, wasting one's own time, or simply avoiding a law suit altogether, I hope the following guidelines will make the trustee's life just a little bit better.