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Is their wish your command? Thoughts for trustees and settlors on letters of wishes

It is common practice when a trust is established for the economic settlor to provide a letter of wishes, addressed to the trustees of the trust, setting out their wishes with respect to the administration of the trust. For the trustees, such letters are often a valuable insight into the rationale for the establishment of the trust, how the trust assets are to be utilised and other background information about the family of the settlor and/or beneficiaries.

Some settlors take the opportunity to set out prescriptive ‘rules’ about how the trust is to be managed, identifying assets that should remain in the family, particular investment guidelines and outlining when and to whom income and capital should be distributed. Some settlors take a more ‘hands off’ and principle based approach leaving the detail to the trustee to determine how the trust assets are invested and how they are distributed.

Most, if not all, letters of wishes will expressly state that the intention is not to bind the trustees and will acknowledge the right of the trustees to exercise their discretion in the management of the trust assets. As a matter of trust law, it is the trust deed which determines the trustee’s powers and not the letter of wishes. The trustee must take into account all relevant considerations when exercising their discretion.

A common issue with letters of wishes is that that they are not kept up to date. What may have been an appropriate letter of wishes at the inception of the trust may no longer be suitable ten or more years later.

A recent Bermuda case in relation to letters of wishes is the R Trust which does not necessarily raise any new points of law but does provide a helpful reminder of issues which can arise with letters of wishes.

 

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Is their wish your command? Thoughts for trustees and settlors on letters of wishes

 


Grace Quinn
Associate

Bermuda   +1 441 278 7921


Peter A.S. Pearman
Director, Global Head of Private Client & Trust

Bermuda   +1 441 299 4996


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