Offshore Foundations and Offshore Trusts are similar in that each is:
(a) set up by one person (in the case of a Trust a “Settlor”, in the case of a Foundation, a “Founder”)
(b) managed by a 2nd person (in the case of a Trust a “Trustee”, in the case of a Foundation, a “Councillor”)
(c) for the benefit of a 3rd group of persons (ie the beneficiaries).
It is usual at the time a Foundation (or Trust) is established, and at certain key junctures (see below), for the Founder of the Foundation (or Settlor of the Trust as the case may be) to provide the Trustees/Councillors with a Letter of Wishes with regard to the administration of the Foundation/Trust.
What is a Letter of Wishes?
A Letter of Wishes to is an important document, particularly in the case of a Discretionary Foundation/Trust, as it is effectively your instructions to the Trustee/Foundation Council as to how you would like your Trust/Foundation to be administered (and/or funds/capital to be distributed) particularly after your death.
The following points should be considered when completing Letters of Wishes:
- As opposed to a Will, the Trustees/Foundation Councillor/s usually have a discretion as to who shall benefit from the Trust/Foundation. The Trustee/Councillors will need guidance in this respect.
- Although a written Letter of Wishes is not binding upon the Trustees/Councillor/s, they would be expected to give careful consideration to the wishes of the Settlor/Founder. As a matter of Law if a/the request as set out in a Letter of Wishes is in the best of the beneficiary/ies the Trustee/Councillor/s should act on the said Letter of Wishes.
- The Settlor/Founder should remind the Trustees/Councillor/s as to the reasons for setting up the Trust/Foundation and generally who is to benefit. Often at the commencement of the Trust/Foundation it will be the needs of the Settlor/Founder that will be paramount and such wishes should be expressed including a statement as to whether or not assets personally owned are to be considered when the Trustees/Councillors are considering “needs”.
- On the death of the Settlor/Founder (or the survivor of the Settlor/Founder), mention should be made of who then is to benefit. If children are to have priority, is equality to be maintained or is recognition to be given to an individual’s special circumstances and needs?
- Is education to be a priority for the children? And if so, what type of education would the Settlor/Founder like to see preferred? For example, private as opposed to public and the option of tertiary and post-tertiary education and at what sort of institutes? Is assistance to be given to children to enable them to buy or build homes or provide support in careers or business activities?
- At what point should the Settlor/Founder be giving consideration to partial or total distribution to the beneficiaries and is resettlement of a child’s notional share of the Trust/Foundation estate on to another Foundation or Trust for the benefit of that child and his or her direct lineal descendants allowed or appropriate?
- In carrying out any of the Settlor/Founder’s wishes with regard to the children are the Trustees/Councillors to confer with any particular child to ascertain that child’s wishes?
- In the case of death or incapacity of a child, are the needs of that child’s children to be considered?
- Are there specific circumstances relating to a beneficiary such as a drug or gambling addiction which need to be included in the Letter of Wishes?
- Has the Settlor/Founder any particular thoughts as to the need to keep the Letter of Wishes, or any part of the Letter of Wishes, confidential?
It should be noted that a Letter or Statement of Wishes is a document of a confidential nature (which in the right setup should also be protected by legal professional privilege) and therefore not capable of disclosure.
A Letter of Wishes should not only be in place at the outset but should be reviewed on a regular basis and updated where necessary to record if there is any change in the circumstances of any of the beneficiaries of the Trustee/Foundation or special needs which must be met.
When a certain beneficiary/s is in need of financial assistance it is also appropriate that a Letter of Wishes be provided at the time to the Trustees/Councillors putting the case for why a Distribution should be paid to that person or persons.