Also known as: ascertainable standards
Written by attorneys — see sources below.
A distribution standard in a trust that limits a trustee's discretion to expenditures for a beneficiary's health, education, support, or maintenance. The standard supplies an objective benchmark that courts can enforce and that prevents the power from qualifying as a general power of appointment for tax and creditor purposes.
Albert Allen serves as trustee of a trust for his niece Amber Alonzo. The instrument permits distributions only for Amber's health needs, college tuition, and ordinary living expenses. When Amber requests funds for a luxury vacation, Albert properly refuses because the request falls outside the health, education, support, or maintenance categories.
Ava Adebayo is beneficiary and trustee of a family trust. The instrument lets her invade principal only for her own health, education, support, or maintenance. Because the power is held by a trustee and limited by an ascertainable standard, it does not constitute a power of withdrawal that creditors may reach.
Alfred Ashford created a trust naming himself trustee with power to distribute principal for the beneficiaries' health, education, support, or maintenance. After his death the estate successfully argued that the retained power was not a general power of appointment because it was confined to an ascertainable standard, keeping the assets out of his gross estate.
The executor paid the federal estate tax that included the value of the trust principal and filed suit for a refund in the district court. All facts were stipulated for the district court proceeding. The district court ruled for the government. The executor appealed to the United States Court of Appeals for the First Circuit. The decedent had been a donor to three inter vivos trusts previously established by his wife. He served as a trustee of the trusts until the date of his death. The initial life beneficiary was the decedent's adult son. Eighty percent of the trust income was normally payable to the son, with the balance added to principal. Subsequent beneficiaries were the son's widow and his issue. The trust instruments contained powers in Article 4 and Article 7. Article 4 permitted the trustees in their absolute discretion to increase the percentage of income payable to the son when needed in case of sickness or desirable in view of changed circumstances. The trustees could also cease paying income to the son and add it all to principal during such period as they decided the stoppage was for his best interests. Article 7 gave the trustees broad administrative powers, including discretion to acquire investments not normally held by trustees and authority to determine what was to be charged or credited to income or principal. It further empowered the trustees generally to do all things in relation to the trust fund which the donor could do if living and the trust had not been executed. The government claimed that the powers in the two articles required inclusion of the trust corpus in the decedent's estate. The executor disputed this position after paying the tax and seeking recovery. The district court had ruled against the executor on the stipulated facts, leading directly to the appeal.
View caseAnika Anand is the beneficiary of a discretionary trust whose trustee may distribute funds only for Anika's health, education, support, or maintenance. A commercial judgment creditor attempts to compel distributions, but the court refuses because the ascertainable standard keeps the interest discretionary and unreachable by ordinary creditors.
The standard is limited to a beneficiary's health, education, support, or maintenance. These four categories supply the objective benchmark that courts and the tax code recognize.
A power limited by an ascertainable standard is not treated as a general power of appointment. The assets therefore avoid inclusion in the trustee-beneficiary's gross estate under sections 2041 and 2514.
No. Even when a standard exists, ordinary commercial creditors cannot force the trustee to make a distribution.
A power exercisable by a trustee and limited by an ascertainable standard is expressly excluded from the definition of power of withdrawal. The beneficiary therefore does not hold a presently exercisable general power that creditors may reach.
…rebuked for “parsimonious” exercise of judgment. : Many of the cases we are about to cite consider whether there is an ascertainable standard with a different object in view, viz., whether the amount of uninvaded corpus there provided to go ultimately to charity could be reliably predicted, so as to permit an estate tax deduction…