FAMILY TRUST

In a Family discretionary trust, a family’s assets are unconditionally transferred (settled) usually by the key financial Family Member into that trust. The reasons for the transfer can be many and often include a desire to:

a) place those assets beyond the reach of the creditors of the transferor

b) foster and create intergenerational family wealth

c) corporatise a& centralise the wealth management for stronger growth

d) bring an international horizon to opportunities.

However when you initially transfer that wealth you forever give over ownership and control of the Family’s assets to a trustee. This under the terms of most Family Trust Deeds, give the trustee unfettered discretion to deal with those assets.

The ceding of ownership and control can be scary for settlors. Settlors are often concerned with whether the trustee can, in fact, be trusted to accede to their wishes.

However, we have introduced a number of clauses to our deeds and Roles to safeguard against any such risk. One of the clauses provides for the use of a Letter of Wishes from the settlor. Courts in most jurisdictions consider that a trustee should follow the settlor’s Letter of Wishes provided it is not inconsistent with their duties under the trust deed.

While the settlor may issue letters of wishes to provide guidance to the trustee over how he should discharge his duties, for some settlors, there is a lingering concern as to whether the trustee will in fact follow these wishes.

As a result, one of the Roles we use is the Appointer who can replace the trustee if the Appointer considers that the trustee is not adhering to his duties under the trust deed or the letter of wishes. They also have the power to add or remove a discretionary object and to revoke, alter or add to any provisions of the trust deed.

Another role we have introduced, is that of Guardian of the trust.

LETTERS OF WISHES IN FAMILY TRUSTS

If a Letter of Wishes Does Not Bind the Trustee, How Does it Work?
What is a Guardian of a Trust?
Treatment of a Guardian in the Courts
Can a Guardian undermine a Trust?

What is a Letter of Wishes?

A letter of wishes expresses the settlor’s wishes as to what they want the trustee to do in relation to particular matters they raise in their letter. This guidance to the trustee can be both short term and long term.

A common topic is guidance on trust distributions to beneficiaries. When they should be made, how much and criteria of need. Other guidance may be areas to invest the trust assets in.

Can it be Updated?

A letter of wishes may be updated from time to time, without the need to amend the trust deed. So the Settlor can influence the direction of the trust with ease.

Can a Letter of Wishes be Skipped?

A letter of wishes imposes no legal obligation, but it should be taken into account. The trustee is entitled and usually does follow the letter, if it is in accordance with th trustee’s duties.

Why can’t a Letter of Wishes Bind the Trustee?

A letter of wishes imposes no legal obligation, but it should be taken into account. The trustee is entitled and usually does follow the letter, if it is in accordance with th trustee’s duties.

If a Letter of Wishes Does Not Bind the Trustee, How Does it Work?

Provided the trustee considers the matter in question and makes the final decision themselves, then giving effect to the wishes of the settlor will be bona fide. However, he must reject any request expressed in a letter of wishes where it is not consistent with his duties under the deed.

So, even if following those wishes or a request by a beneficiary, means a decision which the trustee would not otherwise have undertaken, then that is OK provided it is consistent with their duties under the deed.

It merely reflects the norm, that the trustee has properly considered the interests of the settlor (or the beneficiary) and have concluded that those wishes are reasonable and in the interests of the beneficiaries.

What is a Guardian of a Trust?

Under our trust deeds you are able to define the duties and powers of a Guardian. There are no standard duties & powers recognised by the laws in the role of Guardian. They can be appointed under the powers under the deed.

Different trusts may provide for different duties and powers of a protector of a trust. Having said that, trust deeds which include a protector

Guardians are often empowered to veto the trustee’s exercise of certain powers and indeed those powers in certain circumstances, may only be exercisable with their consent.

Treatment of a Guardian in the Courts

Does the guardian have a fiduciary duty (like a trustee) in the exercise of their powers for a proper purpose and hence be more responsible to the courts. If not, are they able to operate more selfishly.

The courts look at the trust deed to determine whether a guardian owes fiduciary or fiduciary like duties. The things they consider:

a) In whose benefit the guardian’s powers have been given,

b) what other roles the guardian has such as trustee, beneficiary or settlor,

c) what powers are conferred on the guardian, and

d) the overall effect of the guardian’s powers individually and as a whole.

Where it was intended that the guardian under the deed would be able to benefit, the courts will generally find that they owes no fiduciary oduty which would prevent them acting in their own interest.

Can a Guardian undermine a Trust?

Vesting trust powers that are too wide in the guardian and gutting the discretionary powers of the trustee too much, risks the possibility that the courts may find that it is not in fact, a discretionary trust. So the roles that are appointed in your deed need to be balanced with appropriate powers. We have achieved that balance.