What you need to know about a Letter of Wishes

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 - we discuss below when confidentiality may not apply. 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.

Can a Letter of Wishes be obtained / challenged by a beneficiary?

Although usually made on a confidential basis, problems can arise when beneficiaries request a copy of the Letter of Wishes. This usually happens when a beneficiary is disappointed about what they have (or more usually have not!) received.

The legal rules on how to respond to such a request are as follows:

• No beneficiary has any automatic entitlement to the disclosure of documents relating to a trust
• But, the trustees do have duties to provide a certain level of information to beneficiaries. This means that there are certain documents that trustees should provide as a matter of course to beneficiaries, if asked - for example the trust deed itself and any trust accounts
• Trustees are not normally required to disclose information relating to how they made a particular decision. This means that Letters of Wishes are not within the category of documents that should be provided as a matter of course
• However, the courts have held that even where a Letter of Wishes is marked as confidential it may be disclosed to a beneficiary at the trustees' discretion and the trustees should not refuse disclosure simply because the letter is stated to be confidential. The trustees will need to carry out a balancing exercise and consider the specific reasons for the request and what is in the best interests of all of the beneficiaries together, taking into account all the circumstances at the time
• Data protection laws are increasingly being used by beneficiaries as a way to try to obtain information about trustees' decision making, including the content of Letters of Wishes. Trustees are obliged to respond to requests for personal data, but this is a complex area riddled with pitfalls for the unwary, so trustees should take advice to ensure that their response is compliant with both data protection law and trust law.

Distilling that into a practical approach:

• Trustees should regard a Letter of Wishes as having confidentiality that can be 'maintained, relaxed or abandoned' as they determine best serves the interests of the beneficiaries and the administration of the trust
• There are sometimes options to explore, such as redacting material which the trustees consider not relevant to a beneficiary (or which contains another individual's personal data), or providing documents to a beneficiary's advisers rather than the beneficiary directly, possibly coupled with an undertaking about how the disclosed information will be used
• In difficult cases, professional advice should be taken by the trustees before making a decision. Trustees can also ask the court for guidance on what should and should not be disclosed, provided the expense of going to court can be justified.

Summary

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.

When deciding exactly what to say in a Letter of Wishes, it is important to balance the need to guide the trustees on key issues against the possibility that all or part of the letter may end up having to be disclosed to a disgruntled beneficiary, even though it is stated to be confidential. Seeking advice from your trusted legal adviser is the best way to ensure that the right balance is struck.