Letter of Wishes

A Letter of Wishes is not legally binding on the trustee although the trustee will normally have regard to it when considering the exercise of discretionary powers. This letter sets out how the settlor intends that the trustee deal with the trust fund in the future and the letter may always be changed by the settlor as circumstances determine. Whilst the decisions on investment policy are a matter for the trustee, the settlor and the beneficiaries will usually be consulted in order to determine an appropriate investment strategy.

Use of a protector

When the settlor wishes to create a discretionary trust but also wishes the trustee to receive more specific guidance than is given in the Letter of Wishes, it is possible to introduce a protector. The protector's role is usually negative in that he can either prevent the trustee from exercising certain discretions or require to be consulted prior to decisions being taken. He cannot, however, compel the trustee to do anything.

In trusts with a protector, the trustee will typically only be able to exercise his discretion in favour of a beneficiary with the prior written consent of the protector. This arrangement may be suitable where it is thought desirable for a person closely connected with the beneficiaries to be available to guide the trustee in the exercise of its discretion.

The inclusion of a protector may cause delays in the administration of the trust if the trustee is unable to obtain the protector's consent because, for example, the protector is difficult to contact or is unwell. Furthermore, the involvement of a protector will increase the administrative burden on the trustees with an inevitable increase in costs.

Revocable trusts

Trusts are usually irrevocable. The settlor then has no legal power to wind up the trust and enforce the return of the trust assets to him. Indeed, in many jurisdictions unless a trust is irrevocable the authorities may continue to regard the settlor as the owner of the trust assets. However, there may be circumstances in which the settlor requires the additional comfort of knowing that he has the legal power to break the trust and take the assets back in which case the trust may be revocable. Whilst revocable trusts are not recommended, they may be used if the settlor's professional adviser recommends it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.