A letter of wishes is a private, non-binding document in which the settlor of a trust tells the trustee how they would like discretion to be exercised: who should be favored, when capital should be released, what the money is for, and what the settlor would think about situations the trust deed cannot anticipate.
The non-binding part is the point, and it confuses people at first. If the letter were enforceable, it would effectively rewrite the trust deed, and everything the structure achieves by giving the trustee genuine discretion, from creditor protection to tax treatment, would start to unravel. Because the letter merely guides, the trustee remains the real decision-maker, and the trust remains a real trust. In practice, professional trustees follow sensible letters of wishes closely. Ignoring a settlor's reasonable guidance without cause is how trustee companies lose clients and invite protector intervention.
A useful letter covers the things a deed deliberately leaves open: the order of priority among beneficiaries, ages or milestones for distributions, attitudes toward education, business ventures, or house purchases, guidance on beneficiaries with addiction or spending problems, and what should happen on remarriage or divorce. In discretionary trusts, which describe beneficiaries as a broad class, the letter is often the only place the settlor's actual intentions appear in writing.
Letters of wishes can be updated at any time without amending the trust, which makes them the living part of an otherwise stable structure. Settlors of the offshore trusts covered in our guides, from the BVI to the Cook Islands, typically refresh theirs after major family events. Keep a copy with the trustee and one with the protector, and date every version.
Related terms: discretionary trust, trust deed, trust protector.