Trustees are often tasked with interpreting discretionary distribution language in a trust document. Most professional trust companies have developed formal processes to ensure decisions regarding discretionary distributions – when the trust language is liberal – are made consistently without the fear of prejudice or personal opinion of the Trustee.
A tool that can further help trustees make these decisions is called a Letter of Wishes. With a Letter of Wishes, the Grantor can convey to a Trustee his or her thoughts on family history, dynamics, and what factors are important to consider when making decisions on discretionary requests. Think of it as an aid to the trustees to help them better understand the grantor’s intents that can sometimes be lost in translation of the legal document. The Letter of Wishes can be deemed a confidential document between the Grantor and the Trustee and would be treated as such. The Letter of Wishes is non-binding, and should never conflict with the terms of the trust document.
What goes into a Letter of Wishes is unlimited. It should be whatever guidance the Grantor would like to provide to a Trustee. It can be used to explain the rationale behind actions taken in the trust document by the Grantor. It could be used to explain why certain family members were omitted or why the trust is divided disproportionately amongst the children. Or perhaps why some children received their distributions outright and others did not.
Some Grantors start their Letter of Wishes by explaining why a Trust was established, what the Grantor hopes to accomplish with the Trust and the importance of family. Perhaps the Grantor may want to share stories of how the wealth was created, family heritage and what influences shaped the family. Some Grantors offer personal perspective and philosophy.
A Letter of Wishes is extremely personal. It can be redone or updated as often as the Grantor desires. A copy of the Letter of Wishes should be shared with the current Trustee as well as the successor Trustee – or, at a minimum, placed with the trust document so that it can be discovered and provided to the next serving Trustee.
Below is a sample Letter of Wishes. This is not meant to be a form but rather a tool to assist you in getting started on crafting your own Letter of Wishes, should you desire.
Sample Letter of Wishes
This Letter of Wishes is intended to be a guide for you when considering discretionary distributions for my heirs. I intend to convey my hopes, thoughts, concerns and desires for my heirs.
- My overall focus is ensuring the well-being and health of my heirs. I want to ensure they are happy in their lives and that they become/remain intellectually curious.
- It is important to me that my heirs have strong values, work ethics and morals. I also desire they have a welcoming and supportive environment that promotes peace, love, support and happiness. I implore them to maintain good judgment, remain compassionate and trust in themselves.
- Financial independence with a strong sense of self-worth is important and will provide them an appreciation for hard work and being the best version of themselves they can be.
- While becoming professionally successful is of importance, I want to provide a means for them to balance the ability to focus on passions that perhaps are not related to their ability to earn a living. Education and work should always be a focal point in their lives; however, they need to ensure they are – participating in and providing for their heirs – a sense of focus in the greater good while remaining engaged and productive in their professional endeavors. Philanthropy – not only with money but with time – is important to our family.
- Barring anything out of my heir’s control, it is my strong desire that this trust not be a sole support for their daily living. This trust should be viewed as a supplement to their hard work and not a replacement.
- My heirs should find a career path that ensures them happiness and a sense of fulfillment. As long as my heirs are working to the best of their ability, I want to ensure the money is available. I expect you to consider their circumstances and potential future needs, as well as their life expectancy.
- Important to my family is a good education, good health and family. I want my heirs to be able to spend time with family and therefore I want to ensure travel and hobbies are a strong consideration in making distributions; however, not to the exclusion of education and work.
- I want my trustees to consider special purpose distributions – such as getting married, purchasing a first home or starting a business. I would want all factors weighed exactly as I would have weighed them had an heir approached me for this request. Focusing on such things as the age of the heir, the maturity, education, sense of determination and judgment of the heir. Also considering the financial needs of the heir.
- It is important to me that my heirs understand the need for a budget and a financial plan. Therefore, when making repetitive distributions for normal expenses to my heirs, I find it important that my heirs prepare a budget and have a plan for their future.
- It is with love in my heart and the understanding that this Letter of Wishes will only be used once I have either become disabled or died, that I provide this guidance to the trustees.
Please use your best judgment, the trust document and this Letter of Wishes to guide my family with your wisdom, knowledge and integrity.
The above is just an example of a Letter of Wishes. Additional examples may be provided by your attorney or your Trust Officer.
For more information, please feel free to contact me:
Jacqueline Jenkins, CTFA
Chief Fiduciary Officer / Managing Director
Phone: 561-515-6156 / Email: firstname.lastname@example.org ;
The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only. FSTC does not offer tax or legal advice, professional counsel should be sought for tax or legal advice.