What is a letter of wishes, what are the benefits of having one, and why should they be kept updated? Global Head of Private Clients, Nick Cawley explains.
In many ways a letter of wishes (LoW) is a will’s lesser known, more flexible relative when it comes to estate planning. Yet a LoW offers many benefits to both the individual and their loved ones.
Having worked with private clients and their legal teams to write LoW for over 50 years, we have a strong understanding of what, and what not to include in a LoW to ensure it meets the needs of the settlor and their family.
Over the past two years we have seen an uptick in requests from our high-net-worth clients to produce and amend LoW as they reassess their estate and succession planning arrangements in the wake of the Covid-19 pandemic.
What is a letter of wishes?
A letter of wishes is a guiding document which provides clarity and instruction to the settlor’s family and those charged with looking after their estate after death.
Its purpose is to supplement the terms of a will or trust deed and enable the settlor to take stock of their family plans and express their wishes in a more detailed, personal way. A LoW is not a legally binding document, unlike a will.
A LoW can provide comfort and encouragement to the settlor’s loved ones after their death. It also serves as a useful tool in helping to avoid or resolve family disputes by indicating the settlor’s preferences after their passing.
In the context of the commonly used discretionary trust, the LoW can be used by the settlor to outline how they would like the trustees to manage the assets of the trust. It also provides guidance on how and which beneficiaries of the trust should benefit, and when, after the settlor’s passing.
One of the key advantages of a LoW is its flexibility; it can be adjusted or rewritten as a family’s situation changes, all without the cost and time of editing a will. A LoW should be reviewed regularly to ensure that the content keeps apace with the settlor’s family, personal circumstances and any other relevant factors e.g. a particular investment or changes to tax rules.
Ultimately, a LoW is a practical estate planning tool and helps those administering the deceased’s estate to process everything in accordance with their documented wishes.
What to include in a letter of wishes
A LoW can be anything from a short few paragraphs to a comprehensive document. It should be signed and dated but unlike a will it does not have to be witnessed.
There are no restrictions on what can and cannot be included in a LoW, but information commonly incorporated includes:
- The extent to which any trust beneficiaries should benefit and the timings involved
- Identifying and locating any gifts specified in the will
- Hopes and wishes for offspring and future generations e.g. education preferences
- Passwords for accounts
It is good practice to discuss a draft of the LoW with your trustee and advisers. Their practical experience will help to make sure the LoW is easy to understand and capable of being followed without putting it into practice. There are several key considerations for drafting a LoW:
How a letter of wishes works alongside a will
The purpose of a LoW is to support the will. Therefore, it is important the LoW does not conflict with instructions in the will and it is often a good idea to write the LoW at the same time whilst you are focusing on relevant issues.
While the will can – and should – be succinct, the LoW offers scope to set out in more detail exactly what the settlor’s wishes are. This gives them confidence about the way their wishes have been expressed - the benefits of clarity cannot be overstated.
It is particularly useful to prepare a LoW where the executors and/or trustees have discretion to make decisions over the estate. In this instance the LoW acts as a reference point to guide the executors/trustees when exercising their powers. For example, if there are minor beneficiaries of a trust, the settlor may only want them to receive financial distributions when they reach a certain age.
When the settlor dies, a LoW does not need to enter a formal process to be acted upon, unlike a will which becomes absolute and needs to go through the legal probate process. Once probate is obtained a will also becomes publicly available, whereas a LoW remains confidential.
Owing to changing personal and family circumstances it makes sense to review a will and LoW regularly to ensure it fully reflects the settlor’s wishes.
Watch our panel discussion on LoW below:
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