Confidentiality and Letters of Wishes

Attention: open in a new window. PrintE-mail


The Estate and Trust Disputes team at Cripps Harries Hall LLP is often asked to advise trustees and beneficiaries where there are questions or potential challenges concerning the administration of trusts.  Occasionally issues relating to letters of wishes arise and in this article we look at the principles relating to disclosure of these documents.

 

What is a letter of wishes?

A testator may provide guidance to the trustees, particularly in discretionary family trusts, as to how he would like them to exercise their powers in the form of a letter of wishes.  These are separate documents from the original will, often drafted with confidentiality in mind, with the benefit that they can be changed to suit the wider circumstances or the testator’s intentions.

 

Letters of wishes provide an opportunity for the testator to explain his actions or intentions, for example to explain why particular individuals have or have not been included as beneficiaries, or to lay down non-binding guidance on matters to be taken into account when trustees exercise their discretionary powers.  They also provide an opportunity for the testator to outline his wishes in matters such as the care of children, the distribution of chattels or the management of capital held on a discretionary trust.  Such letters can prove extremely helpful to the trustees in the exercise of their duties and the confidentiality they are afforded may enable sensitive issues to be kept from the beneficiaries themselves – often helping to promote harmony and mutual respect between the parties.

 

Nevertheless, there have been challenges to the confidentiality of letters of wishes, often raised in conjunction with other challenges to the trustees’ administration of the trust generally.  In the case of Breakspear and others v Ackland and another [2008] EWHC 220 (Ch) the court considered the question of whether the beneficiaries of a discretionary trust have a right to see a letter of wishes and it provides a useful review of the relevant law.

 

The facts in Breakspear

In Breakspear, the claimant beneficiaries brought proceedings seeking, inter alia, the disclosure of a letter of wishes which was contemporaneous with the trust settlement.  The case concerned a family discretionary trust and the father was the settlor.  The claimants were three of the beneficiaries.  They sought disclosure of the letter of wishes in order to evaluate their future expectations under the trust.  The trustees had refused the request on the grounds that the letter was confidential, its disclosure could lead to family discord and that the beneficiaries had no entitlement to disclosure.

 

Confidentiality vs. Accountability

The case highlighted a difficulty surrounding letters of wishes.  There is a tension between the trustees’ ability to exercise their discretion without interference or constant challenge and the trustees’ accountability in the exercise of their discretion. 

 

Trustees rely upon confidentiality in the exercise of their discretion in order to do so without interference, whilst the decision-making process needs to be open in order for the beneficiaries to monitor the decisions being made by the trustees.

 

Starting point – the ‘Londonderry Principle’

In his review of the relevant case law, Briggs J. identified what he termed the ‘Londonderry Principle’.  The general principle that beneficiaries are ordinarily entitled to see trust documents is subject to the qualification, identified in the case of Re Londonderry’s Settlement [1965] Ch 918 CA, that trustees are not required to disclose their reasons for exercising discretionary dispositive powers as the process is inherently confidential.  Such confidentiality exists largely for the benefit of the beneficiaries.

 

Briggs J. concluded that this remained good law and that the Londonderry principle was applicable to letters of wishes.  Letters of wishes are provided to assist trustees in the exercise of their discretion.  Briggs J. distinguished between a trust deed and a letter of wishes.  Whilst a trust deed, inter alia, identifies the trustees’ powers, the letter of wishes operates within the limits established by the trust deed.  A letter of wishes assists in the exercise of discretionary powers, an inherently confidential process, and the starting position is that they too are confidential. 

  

When can confidentiality be waived?

Briggs J. then considered the circumstances in which confidentiality can be waived.  A letter of wishes is provided to assist the trustees in their exercise of discretion in accordance with their best judgement and the sound administration of the trust.  He therefore concluded that the disclosure of a letter of wishes is a matter for the trustees or, where applicable, the court. 

 

In Breakspear the trustees had given reasons for their refusal to disclose the letter of wishes.  A consequence was that the court was then able to review the reasons for this decision.  The court duly did so and concluded that the trustees’ decision not to disclose the letter of wishes had been properly made.

 

However, the trustees in Breakspear had also indicated that they shortly intended to seek the court’s approval for a final distribution of the trust fund.  The letter of wishes would have to be disclosed on that application in order to give the beneficiaries an opportunity to address the court (outweighing the need for confidentiality) and because it would be relevant to the court’s decision.  Notwithstanding the above therefore, the court ordered the immediate disclosure of the letter of wishes.  

 

Practical guidance

Some useful guidance for trustees has emerged from Breakspear.  Some of the key points may be summarised as follows:

 

1.  The confidentiality which applies to a letter of wishes can be maintained, relaxed or if necessary abandoned by the trustees of a discretionary trust as they see fit, bearing in mind the interests of the beneficiaries and the due administration of the trust. 

2.  This discretion arises regardless of a request for disclosure by the beneficiaries. 

3.  Where beneficiaries request disclosure of a letter of wishes, the trustees merely exercise (or reconsider the exercise) of their discretion in relation to the request. 

4.  If the trustees refuse to disclose a letter of wishes, they are not obliged to give reasons for their refusal and will not be criticised for not giving reasons.  If they do provide reasons, however, the rationality or propriety of these reasons may be reviewed by the court.

5.  If the trustees intend to approach the court for its approval of an intended distribution under a discretionary trust, it is likely that the court will require disclosure of a letter of wishes.

 

We can help

The Estate and Trust Disputes team at Cripps Harries Hall LLP advises trustees and beneficiaries in relation to many types of disputes or potential disputes concerning the administration of trusts.  The above case illustrates some of the issues which can arise in relation to a letter of wishes and that the steps taken by trustees may determine whether a letter is ultimately disclosed.  If you become involved in a case of this nature, or indeed in disputes involving trusts generally, then we will be pleased to assist.

 

Russell Simpson

 

Partner

 

October 2009