Expertise, Trust, Wills, Estates and Enduring Powers of Attorney

The Importance Of A Letter Of Wishes For A Discretionary Trust

It is usual at the time a Trust is established for the settlor(s) of a Trust to provide the trustees of the Trust with a Letter of Wishes (sometimes called a Memorandum of Wishes) with regard to the administration of the Trust.

Your Letter of Wishes to the trustees of your Trust is an important document as it is effectively your instructions to your trustees as to how you would like your Trust to be administered (or distributed) particularly after your death.

The following points should be considered when completing Letters of Wishes:

  1. As opposed to a Will, the trustees of a Trust usually have discretion as to who shall benefit from the Trust. The trustees may need guidance in this respect.
  2. Although a written Letter of Wishes is not binding upon the trustees, the trustees would be expected to give careful consideration to the wishes of the settlor(s).
  3. The settlor(s) should remind the trustees as to the reasons for setting up the Trust and generally who is to benefit. Often at the commencement of the Trust it will be the needs of the settlor(s) that will be paramount and such wishes should be expressed including a statement as to whether or not assets personally owned are to be considered when the trustees are considering “needs”.
  4. On the death of the settlor or the survivor of the settlors, mention should be made of who then is to benefit. If children are to have priority, is equality to be maintained or is recognition to be given to an individual’s special circumstances and needs?
  5. Is education to be a priority for the children? And if so, what type of education would the settlors like to see preferred? For example, private as opposed to public and the option of tertiary and post-tertiary education and at what sort of institutes? Is assistance to be given to children to enable them to buy or build homes or provide support in careers or business activities?
  6. At what point should the trustees be giving consideration to partial or total distribution to the beneficiaries and is resettlement of a child’s notional share of the trust fund on to another Trust for the benefit of that child and his or her direct lineal descendants allowed or appropriate?
  7. In carrying out any of the settlor(s) wishes with regard to the children are the trustees to confer with any particular child to ascertain that child’s wishes?
  8. In the case of death or incapacity of a child, are the needs of that child’s children to be considered?
  9. Are there specific circumstances relating to a beneficiary such as a drug or gambling addiction which need to be included in the Letter of Wishes?
  10. Has the settlor any particular thoughts as to the need to keep the Letter of Wishes, or any part of the Letter of Wishes, confidential?

As to whether a Letter of Wishes has to be disclosed, there are currently varying views as to the status of such a document in New Zealand. The starting point has always been that a Letter or Statement of Wishes is a document of a confidential nature and therefore not capable of disclosure.

A Letter of Wishes should not only be in place but should be reviewed on a regular basis and updated where necessary to record if there is any change in the circumstances of any of the beneficiaries of the Trust or special needs which must be met.

It is our usual practice to prepare a Letter of Wishes when a Trust is established.  We usually write to settlor(s) of Trusts every five years suggesting a review of their Letter of Wishes.

For further information, please contact Tony Fortune or Katherine McCarthy