The Murdoch Family Trust dispute - a timely reminder of the power of discretion and the role of a Letter of Wishes

The recent high-profile case of the Murdoch Family Trust has brought renewed attention to an age-old tension in trust law, that of balancing the discretion of trustees with the wishes of a settlor.

While the ruling on the Murdoch case is not yet final, the lessons it offers are universally relevant to high net worth individuals and families.

As a professional services firm with a legacy of our own that spans over 50 years, this case highlights a common issue we see in succession planning - the need to maintain trustee discretion while ensuring that the settlor's intentions are respected. It also underlines the invaluable role of a well-constructed Letter of Wishes (LoW).

During my five years working on the ground in the UAE, it has not been uncommon to read trust deeds that more closely resemble legal contracts, leaving little latitude for trustees to act beyond the explicit terms and specific instructions therein. This approach can provide comfort to settlors who want to ensure their intentions are followed to the letter and that their legacy is protected, but the rigidity of prescribed instructions can inadvertently trap a trust in a static framework without the flexibility needed to serve the best interests of all parties.

In discretionary trusts, the power to allocate benefits among beneficiaries lies with the trustees, providing a built-in mechanism to manage competing claims and evolving needs. This allows trustees to make decisions in response to new circumstances, guided by the settlor's wishes but not constrained by them.

The role of a Letter of Wishes in trust planning

This discretion can be further enhanced by a robust and well-thought-out LoW. While not legally binding, a LoW serves as a roadmap for trustees that reflects the settlor's intentions and priorities.

As well as providing more colour on the settlor’s vision, another benefit of a LoW is that it can be relatively informal and changed at any time, without the cost and protraction of amending the terms of the trust deed.

A LoW might include guidance on how settlor’s would like the trust to be managed in terms of investments and distributions, the extent to which the beneficiaries should benefit, and how long it is envisaged that the trust should continue.

Overall, it provides trustees with the context and rationale needed to make informed decisions that align with the settlor's wishes, while providing the flexibility to adapt to unforeseen circumstances and balance the interests of all parties.

By contrast, overly prescriptive trust deeds can mean that any attempt to vary the terms risks being interpreted as a breach of duty, leaving the door open to litigation, reputational damage and a breakdown in family harmony - exactly the kind of issues that trusts are intended to avoid.

Finding the right balance in succession planning

For settlors, the key takeaway is that while it is natural to want to maintain control, too much rigidity can undermine the very purpose of a trust. Instead, they should aim to strike a balance between providing clear guidance and granting trustees the flexibility they need to act in everyone’s best interests.

The Murdoch case underscores the importance of flexibility and foresight in trust planning and is a valuable reminder of the risks of overprescription. A trust that empowers experienced and impartial trustees to act with discretion, guided by a thoughtful LoW, with periodic reviews in place to reflect any changes in the settlor's intentions, is better placed to adapt to the complexities of family dynamics and the evolving needs of beneficiaries.

At the heart of any effective trust is a symbiotic partnership between the settlor and trustees, the trustees and beneficiaries, and the trust's structure and its purpose. With careful planning and governance, this partnership can ensure that the trust achieves its goals of maintaining harmony and protecting a legacy for future generations.

If you would like to discuss this further, please reach out to Dan or a member of our private wealth team.

PraxisIFM Trust Limited is authorised and regulated by the FSRA.