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Memoranda of Wishes

Mandatory or permissible and what about subsequent?

Memoranda of wishes are a common feature of trusts and are considered core documents for the purposes of the Trusts Act 2019 (see s 45(h).  However, what has been less clear is whether letters or memoranda of wishes can be updated over time; and if so whether later wishes can over-ride earlier wishes. 

The matter is helpfully addressed in Public Trust v Kain.  The place of a memorandum of wishes is set out in Chambers v S R Hamilton Corporate Trustee Limited, where the Court of Appeal expressed the view at [36] that:

Settlors are entitled to express their wishes for the benefit of trustees, and trustees are entitled to take them into account. They can be important guidance to them in the exercise of discretionary powers. However trustees, whatever a settlor’s wishes, must conscientiously apply their independent discretion in exercising their powers. …

“Mandatory” or “permissible”

The extent to which wishes can or should be followed has remained a live issue.   As stated in Public Trust v Kain at [121] to [123]:

[121] I do not consider the language used by the Court of Appeal or the New South Wales Court of Appeal in Hartigan to be read as expressing a view that is inconsistent with the settlor’s wishes being treated as a mandatory consideration by a trustee. Nor should those statements in the respective Court of Appeal judgments be viewed as being inconsistent with the United Kingdom Supreme Court’s observation in Pitt v Holt that “[the] settlor’s wishes are always a material consideration in the exercise of fiduciary discretions.” In both the Kain and Chambers decisions the Court of Appeal was commenting on the legitimacy of trustees taking into account a settlor’s wishes rather than addressing the issue of whether doing so was mandatory or permissive. The statement in Pitt v Holt was adopted by this Court in Harrison v Harrison as part of Faire J’s citation of the following passage from Lewin on Trusts:

The significance of the settlor’s wishes has grown with the growth of wide discretionary trusts and powers in preference to trusts comprising wholly or mainly fixed interests. Without some guidance from the settlor, trustees would often have difficulty in identifying who ought to benefit. “The settlor’s wishes”, the Supreme Court has held, “are always a material consideration in the exercise of fiduciary discretions”. It was previously well-established that the trustees are entitled to take serious account of the settlor’s wishes and it is the better view that they are bound to do so; the notion that the trustees may be entitled to take it into account but not bound to do so is in our view wrong, for it is either a relevant consideration which in view of its importance ought to be taken into account or an irrelevant one which should not.

[122] Notwithstanding a settlor’s wishes, a trustee must conscientiously apply their independent discretion. A settlor’s wishes can only be taken into account if they are not inconsistent with the purposes of the trust as appear from its written terms. Subject to that requirement, the settlor’s expressed wishes can provide important guidance to the trustees when exercising their discretionary powers. However, the trustee must make an independent assessment of the appropriate course of action, taking into account not just the expression of wishes by the settlor but all material considerations.46 As the Court of Appeal observed in Chambers v S R Hamilton Corporate Trustee Ltd:

Trustees should not blindly obey all settlor instructions. It is necessary for trustees to read and understand a memorandum of guidance to discern the settlor’s wishes, and then with those wishes in mind make an independent assessment of the appropriate course of action, taking into account not just the memoranda, but all relevant factors.

[123] A trustee is therefore obliged, as part of the exercise of its discretion, to have regard to a settlor’s wishes for the purpose of making its independent assessment of the appropriate course of action. The trustee may ultimately decide to put those wishes to one side but in order to do so it must have had regard to the content of those wishes. They cannot be ignored and disregarded without the trustee having done so. It follows that a trustee is required to take into account the settlor’s wishes.

Importantly, in Public Trust v Kain, Mander J also considered the position where there are subsequent inconsistent wishes stating that:

[128] As a starting point, which is no more than what the direction can be in the absence of any consideration of the disputed factual background, it appears plain that, all things being equal, subsequent statements of wishes by a settlor that are inconsistent with prior expressed wishes will supersede those earlier statements. That is the effect of the Court of Appeal’s decision in Chambers. In that case, two memoranda of guidance were provided by the settlor that were issued some four years apart. An addendum that effectively revoked the substance of the second statement of wishes was issued some three months later. The Court of Appeal identified the relevant expression of wishes to be used as guidance by the trustees in exercising their discretion were those extracted from the last memorandum, as amended by the addendum.

[129] So long as they are consistent with the trust deed, there is a compelling logic for a trustee endeavouring at the time of exercising its discretion to view the most recent expression of wishes as being more relevant to its task than earlier inconsistent wishes. Understanding a settlor’s wishes at the time the trustee is exercising its discretion necessarily requires the trustee to take into account the most recent current guidance offered by the settlor. Whether that guidance is followed remains a matter for the trustee to weigh in the exercise of their discretion. In so doing, the trustee will have regard to whether those wishes are consistent with the terms of the trust’s deed, and to all other relevant considerations, including the circumstances that applied at the time the settlor expressed their wishes.

While many memoranda of wishes are pro forma documents prepared on general terms; a well-considered memorandum of wishes is an important aspect of trust governance that should not be overlooked and now following Public Trust v Kain settlors may wish to review their wishes from time to time as circumstances dictate.

References:

  • Public Trust v Kain [2021] NZHC 1000
  • Chambers v S R Hamilton Corporate Trustee Limited [2017] NZCA 131

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