Legal Tip 390: Memorandum of Wishes and Trusts (and Wills)

Discussion in 'Legal Issues' started by Terry_w, 9th Apr, 2022.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A ‘memorandum of Wishes’ Is also known as a ‘letter of wishes’ or ‘statement of wishes’. I call them “MOWs”

    A MOW is an informal document making suggestions or wishes as to how a discretionary trust could be administered in the future. It could be about a discretionary trust set up in a will or a discretionary trust set up during sometimes life. The document will not be legally binding and won’t form part of the trust deed or the will. They might be able to be used in court though as evidence.


    Example

    Homer sets up the Simpson Family Trust which is a discretionary trust. He runs it while he is alive and writes a MOW that he wants the next controller to read and use it to guide them when operating the trust in the future after he is dead or incapacitated.



    His MOW says that he wants all the income of the trust to go to his 3 kids equally.

    The trust deed doesn’t say this. It allows full discretion to the trustee.

    Homer dies and Marge now controls the trust. Marge decides that the trustee will distribute the income to herself and the kids in unequal shares because they are still living with her. She has to be careful not to breach her fiduciary duties in this though as it is a conflict of interest.

    Bart isn’t happy and brings up the MOW – legally it is meaningless, it has no effect. It is a mere suggestion no matter how it is worded.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have seen increase use of discretionary trusts which include estate planning mechanisms that are triggered on death, bankruptcy, capacity etc. This embeds into the deed the change of appointor etc all ON DEATH or another qualifying event. Can also be embedded into the trustee constitution etc so that on death etc a change of shareholding (control of voting) occurs. Commonly irrevokable with options for cascading choice so if #2 is deceased it follows to next etc

    Testamentary in its operation so that the deed prevails ahead of the will. No executor involvement.

    So if Marge remarries and is persuaded to make changes she may not even have control. Homer may have passed control to Barney & Apu (who ire NOT each a beneficiary) until Bart turns 22. and Lisa is 18. Or if they dont agree Rev Lovejoy and Ned Flanders.