Womble Bond Dickinson
By Will Bonas and Fiona McLaughlin
February 25th, 2021
A Letter of Wishes is an important document and we would usually recommend writing one when setting up a trust or writing a Will which contains trust provisions. They should be updated when circumstances change and reviewed on a regular basis.
A Letter of Wishes is a tool that can be used by someone setting up a trust (the settlor), or making a Will which includes a trust (the testator):
- to describe how they would like the trustees to manage the assets of the trust
- in the case of a discretionary trust, i.e. with a defined class of discretionary beneficiaries and where the trustees have wide discretionary powers, to provide guidance on issues such as which of the discretionary beneficiaries should benefit, when and on what terms.
The trustees are not legally bound to follow a Letter of Wishes, but it is guidance that they must take into account and in practice it is usually followed.
A big attraction of a Letter of Wishes is that it can be relatively informal and can be changed at any time, without the cost and formality of amending the terms of the Will or trust deed. That said, it can be worthwhile to have your adviser prepare a first draft or to review the contents, to ensure the right topics are covered.
Another appeal is that Letters of Wishes can usually be kept confidential from the beneficiaries. Contrast this with a Will which becomes publicly available after death once a Grant of Probate is obtained, or a trust deed which usually has to be provided to a beneficiary on request. Letters of Wishes are therefore an opportunity to provide more private or sensitive information to guide the trustees. For example, they might explain the reasons why somebody has been excluded as a beneficiary, why the needs of a particular beneficiary should be prioritised, or the age at which assets should pass to a beneficiary.
What should a Letter of Wishes include?
There are no hard and fast rules on what a Letter of Wishes should contain, but it should not conflict with the terms of the Will or trust deed. Typically it should provide guidance from the settlor/testator on issues such as:
- How they would like the trust to be managed in terms of investments and distribution of the income
- The extent to which the named beneficiaries or those in a class (for example grandchildren) should benefit, for example whether a beneficiary is to receive just income, be able to occupy a particular property or also to receive distributions of capital
- Whether outright distributions of capital are to be made or should these be limited to loans?
- How any younger beneficiaries should benefit – for example, is it envisaged that the trust assets should be used to pay for maintenance and education, or are they intended for their longer term benefit?
- How long it is envisaged that the trust may continue.
A Letter of Wishes supporting a Will might also contain guidance from the testator about the following:
- Gifts they would like the executors to make (whether of money or personal possessions), rather than including details in the Will itself
- Instructions for the executors to pass on to those appointed as guardians of any minor children, perhaps covering their upbringing, where they might live, religious beliefs etc
- Guidance on any particular funeral arrangements, to ensure that their wishes are known.
