My wish is not my command

Monday, 01 December 2014
John Harper explores some of the features of letters of wishes.

It is common practice, and desirable, for a settlor of a trust to give the trustees guidance as to how they would like them to exercise their powers, particularly when the settlor has shuffled off this mortal coil.

A letter of wishes is not intended to be legally binding, but merely to offer guidance. To help avoid any possibility of misinterpretation, the letter will often contain an acknowledgement that its provisions are not binding. Furthermore, it will preferably be signed by the settlor a few days after the trust has been created, to prevent any suggestion that the two should be read together as one item. It is, therefore, a separate document from the trust instrument and it provides more confidentiality and more flexibility, as it can (and should) be changed or replaced as the settlor’s circumstances or those of their family change.

In many cases, a letter of wishes will become the most important tool for assisting the trustees in reaching decisions and for managing family affairs

In many cases, a letter of wishes will become the most important practical tool for assisting the trustees in reaching decisions, and sometimes for managing family affairs for many years to come. It may be used to explain why certain family members have not been included as beneficiaries, or why unexpected beneficiaries have been included. Children with special needs are particularly important in this context, and the letter of wishes may lay down guidelines that stretch far into the adult life of that person.

A couple of cases

Reports of actual cases relating to letters of wishes are rare. However, in the case of Re Esteem Settlement [2003] JLR 188, the Royal Court of Jersey confirmed that a trustee may accede to every request of a settlor without departing from its fiduciary duties: ‘A lack of any refusal may of course be indicative of the fact that trustees have abdicated their fiduciary duties and are simply following the wishes of the settlor without further consideration. But… a lack of any refusal may be equally consistent with a properly administered trust where the trustees have in good faith considered each request of the settlor, concluded that it is reasonable, and concluded that it is proper to agree to such requests in the interests of one or more of the beneficiaries of the trust.’

Settlors will often ask how private their letters of wishes actually are. There certainly have been challenges to the confidentiality of letters of wishes. In the case of Breakspear and others v Ackland [2008] EWHC 220 (Ch), the High Court of England and Wales considered this subject. The claimants were three of the beneficiaries, who sought disclosure of the letter of wishes in order to evaluate their future expectations under the trust. The trustees had refused the request. Briggs J referred to the general principle that beneficiaries are ordinarily entitled to see trust documents, but subject to the qualification, identified in the case of Re Londonderry’s Settlement [1965] Ch 918, that trustees are not required to disclose their reasons for exercising discretionary dispositive powers, as the process is inherently confidential. The judge concluded that the disclosure of a letter of wishes is primarily a matter for the trustees, who had, therefore, acted properly.

However, there are more cases being reported in connection with substantial divorce settlements where assets are held in trust, or where acrimonious disputes arise between the settlor and beneficiaries. As the content of a letter of wishes of a trust is often highly material to these cases, it would be very naive to believe that the court would not order their disclosure.

Keep current

Finally, it is very important for the trustees and the settlor to review the letter’s contents regularly, whenever the opportunity arises. I recall one occasion when I asked a settlor to consider updating his letter’s contents, as we had not done so for several years. ‘Nothing has changed,’ he said. ‘I am quite happy with its contents.’ I replied by saying: ‘During the meeting we had earlier today, together with some of the beneficiaries, you mentioned your ex-wife, the fact you have had a child with your new partner and that your once-favourite daughter is now a heroin addict. Do these occurrences not affect what your letter of wishes should say?’ He responded: ‘Oh. Well, of course they do. I thought I had told you about these things ages ago, but obviously not.’

Author block
John Harper

John Harper TEP is a part-time lecturer, delivering face-to-face courses for the STEP international diploma examinations all around the world.

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