Bermuda: Part Two: Amending A Letter Of Wishes

In part one of the mini-series we looked at the status of letters of wishes, the extent to which trustees are bound by letters of wishes, and the circumstances in which a trustee can (or should) depart from the settlor's wishes. This second essay addresses the extent to which it is possible to amend or replace a letter of wishes and the effect of the same.

Whilst a letter of wishes will often be drafted at or around the time the trust is settled, it is not uncommon for a settlor to update his letter of wishes during the course of his lifetime, sometimes many times. Indeed, it is advisable for a settlor to review his letter of wishes regularly to ensure that it still represents his intentions in relation to the trust. Oftentimes, a letter of wishes will expressly state that it is subject to revision in future.¹

It is of note that, although the focus of this essay is on letters of wishes, it is also possible for the settlor to convey his wishes to the trustee orally, although of course, as a practical matter, this approach leaves more scope for the settlor's wishes to be misunderstood, misremembered or overlooked.²

Although there is scope for argument to the contrary,³ it is the authors' view that the initial and any subsequent letter of wishes will have the same status in most instances when considering whether the trustee has adequately deliberated in relation to a proposed exercise of its discretion. When a letter of wishes is provided to the trustee, it is a source of guidance for the trustee and is a relevant consideration in relation to the trustee's decision-making. When a letter of wishes is replaced by another letter addressing the same issues, the original letter may cease to be of effect (provided the wishes expressed in the later letter are consistent with the purpose of the trust); if the later letter deals with different issues, it will be treated as supplementary and the trustee will derive guidance from both letters.⁴

Support for this contention can be found in the case of Abacus Trust Co (Isle of Man) v Barr,⁵ in which Lightman J approached his analysis on the basis that the trustee was required to consider the settlor's wishes as at the time it exercised a trust power. Abacus was approved in Pitt v Holt,⁶ although the latter case did not expressly deal with the issue of the timing of letters of wishes at all. Notwithstanding this, Pitt v Holt has been treated by some as representing the culmination of a line of authority confirming a trustee's obligations to consider the settlor's wishes as they are expressed from time to time. For example, an article in Trusts & Trustees expressed the view that: 'There is a clear line of authority – culminating most recently in the decision of the Supreme Court in Pitt v Holt – that the trustees' duty extends beyond the settlor's original, founding purposes, and that the trustees are under an "on-going" obligation to consult the settlor and to take into account his wishes when administering the Trust.' ⁷

Further support for the authors' view can be found in Drafting Trusts and Will Trusts by James Kessler KC et al.,⁸ which plainly assumes that a settlor's wishes can be provided and updated at any time. Kessler et al. note: 'In practice settlors will indicate their wishes to the trustees (no other course is really practical) and formal legal documentation should accord with reality.' The authors agree with that sentiment: having settled the trust, it is unrealistic to expect the settlor not to want to provide input in relation to how he would like the trust to be administered and there is no reason that the ability for the settlor to do so should be limited to a one-time opportunity at the trust's inception. The settlor's wishes are undoubtedly a relevant consideration for the trustee, howsoever and whensoever expressed.

This analysis is also consistent with the approach taken by the Bermuda Court in In the matter of the R Trust [9] (explored in detail in part one of this mini-series) and with Breakspear v Ackland, in which the Court ordered disclosure of the settlor's letter of wishes and of records of his wishes as expressed orally, without any objection being taken in relation to the notion that a settlor could provide or update his wishes orally.¹⁰

There is one situation, however, in which an initial letter of wishes may have a very different status from a subsequent letter of wishes, and that is in relation to understanding the purpose of a power conferred on the trustee (as distinct from the trustee's deliberation in respect of the same). A good example of this can be seen in the recent Privy Council decision in Wong v Grand View Private Trust Co Ltd.¹¹ In that case, the settlors (two brothers, who were highly successful Taiwanese businessmen) created two trusts: The Global Resource Trust (No. 1) ("the GRT"); and the Wang Family Trust ("the WFT"). The beneficiaries of the GRT were the settlors' children and remoter issue. The inaptly-named WFT was in fact a purpose trust; it was not for the benefit of family members. Its purposes included providing 'mutual assistance to mankind and help to those in need' and 'improving the standard of living for mankind'.¹²

Some time later, the settlors decided that they had made adequate provision for their children and remoter issue elsewhere and they wanted to transfer the assets of the GRT to the WFT to be used to further the purposes of the WFT. In order to achieve this, the trustee of the GRT exercised powers to add the trustee of the WFT to the class of beneficiaries under the GRT, to exclude the other beneficiaries (the settlors' children and remoter issue) of the GRT, and to appoint the entirety of the GRT trust fund to the trustee of the WFT. Perhaps unsurprisingly, this decision was challenged by some of the excluded beneficiaries.

In determining the trustee's proposed exercise of the power of addition and removal, the Court had to consider: (i) the scope of the power granted to the trustee; (ii) whether the trustee had given adequate deliberation to whether and how to exercise the power; and (iii) whether the power was to be exercised for a proper or improper purpose.¹³ It is on this third point – in relation to what was referred to as the "proper purpose rule"– that the original letter of wishes may take on increased significance.

The question of the proper purpose is a matter of construction of the trust deed, although it is permissible to look beyond the four corners of the trust deed itself to the relevant factual matrix. As out by the Privy Council in Wong v Grand View:

'It was common ground, and in the Board's view correct, that documents which objectively inform the context of the instrument in question, such as in this case the WFT trust deed, are admissible, as are substantially contemporaneous documents which are intended to be read with the trust deed, such as a letter of wishes provided by the settlor or economic settlor (although there was no letter of wishes in this case). It was common ground that, while trustees could legitimately have regard to wishes later expressed by the settlor, or in this case the Founders, as to how the trustees should exercise their dispositive powers, such wishes were not admissible in determining the purpose of those powers. There is a need for certainty, given that the terms and purpose of a trust instrument and the powers it confers create rights for beneficiaries and impose duties on trustees.'¹⁴ [emphasis added]

It is plain, therefore, that in relation to ascertaining the purpose of the trustee's powers, only letters of wishes substantially contemporaneous with the trust deed will be relevant. This makes sense, as the powers are conferred at a moment in time (even if the settlor later changes his mind about how they should be exercised) so the proper purpose of those powers can only be discerned from the settlor's wishes as expressed at or around the same time the powers were granted. Of course, subsequent letters of wishes are not wholly irrelevant; they still form part of the trustee's adequate deliberation in relation to whether and how to exercise the power, but they are not relevant to the construction of the power itself.

There is one other way in which the timing of a settlor's letter of wishes may have an impact and that is in relation to the weight to be accorded to the views expressed therein. For example, whilst they may both have the same status as a "relevant consideration" when it comes to the trustee weighing up a decision in relation to a proposed distribution, a letter of wishes produced 25 years previously, at a time when family circumstances were known to have been different, may be given significantly less weight than a letter of wishes produced three months ago.¹⁵ As a practical matter, it is perhaps unsurprising that more recent letters of wishes may be afforded more weight in some circumstances. After all, when exercising its powers, a trustee is bound to consider the circumstances then prevailing, which are more likely to be reflected in a contemporaneous letter of wishes.

Footnotes

1. See, for example, the standard form letter of wishes in Withers LLP (ed.), (2022) Practical Trust Precedents, release 45. London, Sweet & Maxwell, Precedent E13d1

2. See, for example, Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409, in which the settlor's wishes were conveyed orally, through an intermediary who misunderstood / misinterpreted them when passing them on to the trustee.

3. For which, see the "orthodox position" considered in Moverley Smith, S. and Holden, A. (2014) Letters of wishes and the ongoing role of the settlor. Trusts & Trustees. 20 (7), 712–724 at 715-716. The argument can be summarised thus: once a trust is fully constituted, the trust property becomes the legal property of the trustees, in which the beneficiaries have the beneficial interest. The settlor does not retain any proprietary interest in the trust property and his status as former owner of the trust property therefore becomes irrelevant. If that is so, then the trustees ought to have no need to have regard to his wishes, save perhaps for the limited purpose of better understanding their powers in the context in which they were granted, in which case only a letter of wishes contemporaneous with the trust deed will be relevant.

4. See, for example, Ivanishvili v Credit Suisse Life (Bermuda) Limited [2022] SC (Bda) 19 Civ, in which the settlor provided numerous letters of wishes, including four letters of wishes on the same day in August 2012 (at [53]).

5. Op. cit. (n 2)

6. Pitt v Holt [2013] 2 AC 108

7. Moverley Smith, S. and Holden, A. op cit. (n 3) at 716. See also: Avis, R. and Denham-Smith, T. (2023) Letters of wishes and trustee decision-making after Grand View v Wong. Trusts & Trustees 29 (5)., 393-401, 398: 'It now seems uncontroversial to state that a trustee may take into account the wishes of the settlor expressed over time.'

8. Kessler, J., et al., (2023) Drafting Trusts and Will Trusts, 15^th ed.. London, Sweet & Maxwell at § 7.16

9. In the matter of the R Trust [2019] Bda LR 39

10. Breakspear v Ackland [2009] Ch 32 at [100]-[101].

11. Wong v Grand View Private Trust Co Ltd [2022] UKPC 47

12. Ibid. at [7].

13. Ibid. at [51].

14. Ibid. at [63].

15. See also: Moverley Smith, S. and Holden, A. op. cit. (n 3) at 723: 'In many cases the age of a letter of wishes will lessen its significance, as the family's changing circumstances render it obsolete.'

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Kennedys operates in Bermuda in association with Kennedys Chudleigh Ltd.