What you need to know about a Letter of Wishes
Why have one?
A Letter of Wishes (LoW) is often used by someone setting up a trust, or making a Will which includes a trust, to:
describe how they would like the trustees to manage the assets of the trust; and
in the case of a discretionary trust, provide guidance on issues such as which beneficiaries should benefit, when and on what terms.
The trustees are not legally bound to follow a LoW, but it is guidance that they must take into account. In practice it is usually followed.
The two main attractions of a LoW are that:
it can be relatively informal and changed at any time, without the cost and formality of amending the terms of the Will or trust deed.
it can usually be kept confidential. This provides an opportunity to give private or sensitive guidance to the trustees, unlike a Will which becomes publicly available after death, or a trust deed which usually has to be provided to a beneficiary on request. Beware that there are exceptions to confidentiality, as we go on to discuss.
What should a Letter of Wishes include?
There are no set rules on what a LoW 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 investments to be managed and income distributed.
how the named beneficiaries or those in a class (for example grandchildren) should benefit.
whether outright distributions of capital are to be made or should these be limited to loans?
how any younger beneficiaries should benefit, for example should the assets 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 LoW supporting a Will might also contain guidance from the testator about:
gifts they would like the executors to make, rather than including details in the Will itself.
instructions for the executors to pass on to those appointed as guardians of any minor children, covering their upbringing, where they might live, religious beliefs etc.
guidance on particular funeral arrangements.
Can a Letter of Wishes be obtained / challenged by a beneficiary?
Problems arise when beneficiaries request a copy of the LoW. This usually happens when a beneficiary is disappointed about what they have (or more usually have not!) received.
Although a LoW does not have to be disclosed to a beneficiary as a matter of course, the courts have held that the trustees do have the discretion to do so, and the trustees should not refuse disclosure simply because the letter is stated to be confidential.
If a LoW is requested, trustees must carry out a balancing exercise and consider the specific reasons for the request and what is in the best interests of the trust and all of the beneficiaries together. In difficult cases, professional advice should be taken before making a decision.
It is vital to consider making a LoW when setting up a trust or writing a Will which contains trust provisions. They should be reviewed on a regular basis and updated when circumstances change.
It is important to balance: a) guiding the trustees on key issues, against b) the possibility that the LoW may end up having to be disclosed to a disgruntled beneficiary.
Seeking advice from your trusted legal advisor is the best way to ensure that the right balance is struck.
Guest writers from Womble Bond Dickinson – Private Wealth
This communication is provided for general information only and does not constitute legal, financial or other professional advice. You should consult a suitably qualified lawyer on any specific legal problem or matter. “Womble Bond Dickinson”, the “law firm” or the “firm” refers to the network of member firms of Womble Bond Dickinson (International) Limited consisting of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP. Each of Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP is a separate legal entity operating as an independent law firm. Womble Bond Dickinson (International) Limited does not practice law. Womble Bond Dickinson (UK) LLP is authorised and regulated by the Solicitors Regulation Authority. Please see www.womblebonddickinson.com/legal notices for further details. November 2017