Memorandum of Wishes
You have probably heard the term “Memorandum of Wishes”. It’s legalese for a document intended to guide the trustees of a Trust once the person who set the Trust up is no longer around. If you have a Trust you should have a Memorandum of Wishes.
Lets pretend that the settlor (i.e. the person who set up the Trust) has died. Maybe he or she knew exactly what they wanted to achieve through the Trust: They probably wanted the Trust to look after their best interests while they were alive, and then in its simplest form they might’ve been leaving everything to the kids in equal shares once they’d passed.
There are a couple of things to understand about that simple example:
Firstly a Memorandum of Wishes is not actually binding. In other words the trustee doesn’t have to do what it says. Okay then, to what extent does a trustee have to comply with the settlor’s wishes?
In a 2017 Court of Appeal decision, the Court held that a trustee should read and understand the Memorandum of Wishes to work out what the settlor’s wishes were and then, with those wishes in mind, make an independent assessment of the appropriate course of action. They are to take into account not just the Memorandum of Wishes but all relevant factors. That could include factors such as:
Is now a good time to be selling Trust property so it can be divvied up amongst the beneficiaries? It might be a depressed market. Maybe if the trustee was to wait six months interest rates could be lower, buyer demand could be stronger, and you might get a better price?
What about the beneficiaries circumstances. Lets say the Memorandum of Wishes says split it all three ways between the three children. But one of them is a multimillionaire, one of them is in a relationship from hell that could fall apart in splendid fashion any day, and the other is in clink having spent all his money – or in the words of George Best "I spent a lot of money on booze, birds, and fast cars. The rest I just squandered." As a trustee do you really think it’s a good idea to give each of them a handout right now? Maybe the timing is wrong.
Maybe the timing is always going to be off if you are thinking about distributing assets to the beneficiaries directly. Perhaps it would be better to distribute their share to a Trust for each of them instead. Saves the risk of someone getting to it by suing them. Saves the risk of them losing it all to a greedy and opportunistic partner who can smell money from a mile away.
Secondly, that simple example is not so common these days. More often than not the family dynamics are a bit more complicated – blended families and second time arounders abound. So it is going to take a lot of thought to decide how to cater for everyone fairly.
Another thing to bear in mind - beneficiaries have become more emboldened by the Trusts Act 2020. There is almost an expectation now that the settlor will involve beneficiaries in decisions about who will get what from the Trust. I do not believe that it is necessary or even advisable. For a start no beneficiary has an absolute right to expect anything from the Trust. They are all “discretionary” beneficiaries meaning they will get something if the trustee decides they will. I’m also mindful of two recent 2024 High Court decisions which considered s126 of the Act. S126 is the section of the Act which has emboldened beneficiaries. It allows a trust beneficiary to apply to court for a review of a trustee’s “act, omission or decision” on the grounds that it is not reasonable in the circumstances. The upshot of these two decisions is that the court is “not willing to interfere with the exercise of trustee discretion if the decision was reasonably open to the trustee after taking into account the relevant considerations”.
So our advice is prepare a Memorandum of Wishes. You’ll be gone by the time the trustee has to look at it remember. So make sure it is reasonable. If you want the trustee to make awkward decisions that you know could cause ructions after you’ve gone, just remember that the trustee doesn’t have to slavishly abide by it.
If you are a trustee you are in the hot seat now. If the Memorandum of Wishes proposes a course of action, but all other factors support a different course of action which will lead to a better outcome, you can be sued for not taking the other factors into account in your decision making.
Digital Legacy
What is a “Digital Legacy”?
Basically it’s a term used to capture all those online accounts – bank accounts, investments, share trading accounts and so on - that really nobody else knows much about apart from you. They have a username and password that nobody else knows.
I would hate to think how many trillions of dollars are out there slushing around in such accounts because someone died and nobody knows about them or if they do, they don’t know how to access them. Yes there is an element of risk in writing down all your online account numbers, or websites and apps with usernames and passwords because if they falls into the wrong hands someone could go to town at your expense.
But you need to do something – you need to make it easier for your loved ones to access these things once you have gone or else you could just be adding to the unclaimed trillions. Whatever system you use, whether it is written down or whether you use an online password app like dashlane, perhaps the best thing is to have the details kept with your Will so they are there for your trustee when needed.
If you want to discuss or if you haven’t got a current Will or a Memorandum of Wishes please contact Queenstown Law www.queenstownlaw.co.nz on 034500000, russell@queenstownlaw.co.nz or claire@queenstownlaw.co.nz
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