Memorandum of Wishes: What are they are why are they important?

A Memorandum of Wishes, sometimes called a Letter of Wishes or Memorandum of Guidance, is an important document for anyone who has established a trust.

It allows the person who created the trust, known as the settlor, to record their wishes for how they would like the trust to be managed. This guidance can be useful during the settlor’s lifetime, but it can become particularly important after their death.

Trustees have discretion when making decisions about trust assets. A Memorandum of Wishes can help trustees understand what the settlor intended, especially where the Trust Deed gives them broad powers.

In this article we outline why a Memorandum of Wishes is useful, what it can cover, and why it should be reviewed regularly.

Why a Memorandum of Wishes matters

A common question is whether a Memorandum of Wishes is needed if you already have a Will.

In most cases, the answer is yes. A Will generally deals with assets owned personally by you. A Memorandum of Wishes deals with assets owned by your trust.

This distinction is important. After your death, your executors must follow the instructions in your Will when dealing with your personal estate. Trustees, however, usually have discretion about how trust income and capital are used or distributed, subject to the terms of the Trust Deed and their duties as trustees.

Without a Memorandum of Wishes, trustees may have little guidance about how you intended the trust to be managed. This can make decisions more difficult, particularly where there are multiple beneficiaries or family circumstances have changed over time.

Providing guidance to trustees

A Memorandum of Wishes does not replace the Trust Deed. The Trust Deed remains the key document that sets out the trustees’ powers and obligations.

Instead, a Memorandum of Wishes sits alongside the Trust Deed as a guide for trustees. It can help trustees understand your views on matters such as how trust assets should be used, which beneficiaries may need particular support, and whether the trust should continue or be wound up after your death.

For example, you may wish to record whether the trust should continue for a period of time to preserve assets for your children or grandchildren. This may be relevant where asset protection, succession planning, or relationship property considerations are important.

You may also wish to provide guidance about the use of specific trust assets, such as whether a beneficiary should be allowed to live in a property owned by the trust.

What a Memorandum of Wishes can include

The content of a Memorandum of Wishes will depend on your circumstances and the purpose of the trust.

It may include guidance about:

• Whether the trust should continue after your death, or whether it should be wound up and the assets distributed.
• How income and capital distributions should be approached for children, grandchildren, or other beneficiaries.
• Whether any particular beneficiary should receive additional consideration because of their personal or financial circumstances.
• Whether the trustees should support particular purposes, such as education, travel, health needs, or the purchase of a first home.
• Who you would prefer to act as replacement trustee or trustees, if this has not been dealt with in another document.
• How you would like trust assets to be distributed if the trust is eventually wound up.

A clear Memorandum of Wishes can help reduce uncertainty and provide trustees with a practical framework when making decisions.

Is a Memorandum of Wishes legally binding?

A Memorandum of Wishes is not legally binding. Trustees must retain their discretion and cannot be required to simply follow the settlor’s wishes without considering the circumstances at the time.

However, prudent trustees are likely to take a Memorandum of Wishes seriously. It provides valuable insight into the settlor’s intentions and can help trustees make decisions that are consistent with the purpose of the trust.

Because it is not legally binding, a Memorandum of Wishes can usually be updated more easily than other formal trust documents. This makes it useful where family, financial, or personal circumstances change over time.

Who should see the Memorandum of Wishes?

A Memorandum of Wishes is generally a confidential document. It does not need to be provided to all beneficiaries, and it is usually only shared with those people the settlor chooses to involve.

It is often sensible to provide a copy to the trustees, so they are aware of the guidance available to them. A copy should also be kept safely with your lawyer.

As with other trust documents, it is important that a Memorandum of Wishes is reviewed regularly. Outdated guidance may not reflect your current intentions, family circumstances, or the way the trust is now operating.

 

Our experienced Trust Management team can support you to administer and maintain the effectiveness of your trust, ensuring it is robust and compliant. Reach out to us to arrange a review of your trust, or to discuss our Trust Management service.