It might seem an obvious thing to say, but a discretionary trust allows the trustees to use their discretion when paying income or capital to beneficiaries. Also, there are typically ‘classes’ of beneficiaries set out in the trust deed, which can for example include widow/widower, children, or grandchildren, sometimes without naming individual beneficiaries. So, the trustees also have discretion as to who will benefit, when and to what extent, if at all.
Consequently, the settlor (the person(s) who set up the trust, either during their lifetime or to spring to life upon death under the terms of their will) is wise to also issue a letter of wishes to the trustees to (again stating the obvious) explain their wishes to the trustees.
Discretionary trusts are often associated with investments, property assets and the death benefits on pensions.
Not only is it good practice for the settlor to write a letter of wishes at the time they initially set up the trust (or write their will if it includes a discretionary trust) but it is very wise to review the letter of wishes periodically to ensure the trustees are clear as the settlor’s most recent wishes.
This is an area where we add value through collaboration with a client’s legal advisers, who may have been involved in drafting the trust deed or will. As financial planners, providing an ongoing service to clients that includes regular review meeting, we are ideally placed to prompt the client to review their letters of wishes.
We have provided a link below to a guide for clients to use that explains the seven most important things to bear in mind when writing a letter of wishes.
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