A letter of wishes accompanies a trust deed, offering guidance to trustees on how the settlor wants the structure administered.
A letter of wishes is a document accompanying a trust deed, providing guidance to the trustees on how a settlor wishes the structure to be administered.
While not legally binding, it serves as an important tool in estate planning, particularly for professional wealth and private client advisers who seek to ensure a settlor’s intentions are considered in the ongoing management of a trust.
The primary purpose of a letter of wishes is to supplement the trust deed and to offer guidance to trustees regarding the settlor’s preferences for the distribution and management of assets.
It is particularly useful in discretionary trusts, where trustees have autonomy in making decisions on allocations to beneficiaries. By setting out the settlor’s views, a letter of wishes provides clarity and can help trustees make informed decisions.
Typical information included in a letter of wishes includes:
1. Preferred beneficiaries: The settlor may indicate which beneficiaries should be prioritised when trustees make distributions.
2. Guidance on distributions: The letter may suggest how and when trust assets should be distributed, such as providing financial support for education, housing, or business ventures.
3. Trustee decision-making criteria: The settlor may express wishes regarding factors trustees should consider when making decisions, such as financial need, responsibility, or specific life events.
4. Amendments: At any time, the settlor can update guidance to trustees.
5. Charitable donations: If the trust includes charitable giving, the letter may provide guidance on preferred causes or specific charities.
Examples of letters of wishes in practice:
1. Family trust: A settlor establishes a discretionary trust for their children and grandchildren. The letter of wishes states that the primary focus should be on funding education and home purchases, with discretionary payments for other needs.
2. Charitable trust: A settlor creates a trust to support charitable causes but wishes for specific charities to receive preferential treatment. The letter of wishes outlines a list of charities and suggests the proportion of trust income that should be donated annually.
3. Business succession: A business owner sets up a trust for future generations but expresses a desire that funds should be used to support those who actively participate in the business rather than those who do not.
Abacus is recognised for its market-leading services in the establishment and management of trusts and our client services team has outlined several benefits of a letter of wishes:
- Clarity and guidance: It helps trustees understand the settlor’s perspective, reducing uncertainty in decision-making.
- Flexibility: Unlike a formal amendment to the trust deed, a letter of wishes can be easily updated without legal formalities.
- Confidentiality: Unlike a Will, which becomes a public document upon probate, a letter of wishes remains private, allowing the settlor to provide confidential guidance.
- Continuity of intentions: It ensures future trustees, particularly those who were not involved at the trust’s inception, understand the original settlor’s wishes.
No action should be taken on the basis of this note, nor should it be construed as amounting to tax, legal or VAT advice. Suitable, specific and professional advice should always be obtained in respect on any particular issue.
