The Founder's Letter and the €300,000 Request
Northbridge Trust is a discretionary trust settled in 2016 with an €8m portfolio. The beneficiaries are the settlor's spouse, their two adult children, and remoter issue. The trustee is a small licensed company whose sole director, Marta, has been the settlor's accountant for 20 years and also sits on the board of the family trading company. The trust holds 30% of that company's shares. The deed gives the trustee power to appoint income and capital and to add beneficiaries. The settlor's non-binding letter of wishes from 2019 asks for €20,000 per month to the spouse and for capital to be preserved for the grandchildren's education. Trust income is about €180,000 a year. The spouse now asks for €300,000 to invest in a friend's business. One child has significant annual care costs. The family company's board wants the trust to subscribe for €1.5m of new shares to fund expansion.
1. How should the trustee decide the spouse's request for €300,000, and what weight should the letter of wishes carry?
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The trustee holds a discretion, not a duty to pay. It must survey the beneficiaries and consider the request on its merits. The letter of wishes is relevant evidence of the settlor's intentions but is not binding and cannot replace the trustee's own judgement. Treating the 2019 request for €20,000 per month as a fixed entitlement would fetter the discretion and risk a breach of trust.
The analysis should start with the deed: is the spouse entitled to income, or only eligible? Does the deed permit capital advances, and are any consents required? Next, assess need and impact. €300,000 is 3.75% of the fund, but the trust income is €180,000 and one beneficiary has recurring care costs. The trustee should obtain the business plan, financial projections, security offered, and evidence of the spouse's other resources. It should consider whether a secured loan, a smaller grant, or a staged distribution better serves the beneficiaries as a whole. It must also consider the grandchildren's education objective and the remaindermen's interest in capital preservation.
Impartiality does not mean equal treatment. A reasoned decision either way can be defensible if the trustee documents the factors, avoids irrelevant considerations, and records why the spouse's expectations and the letter were accepted or rejected.
2. What process should the trustee follow, and what are the risks if it treats the letter of wishes as binding?
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A defensible process has several steps. The trustee should convene a properly constituted board meeting, with conflicts declared. Marta's long relationship with the settlor and her role at the family company are relevant conflicts to manage. The trustee should gather written information from the spouse, review the trust deed and any protector consent requirements, obtain investment or legal advice where needed, and minute the reasoning. It should also consider the position of the adult child with care needs and whether any distribution to the spouse would materially prejudice that beneficiary.
If the trustee treats the letter as binding, the risks are substantial. The trustee would be failing to exercise its own discretion, which is a core fiduciary duty. A beneficiary could challenge the decision as a breach of trust, or argue that the trustee took into account an irrelevant consideration or improperly deferred to the settlor. The trustee could face personal liability to restore the fund, and the decision may be set aside. There is also a practical risk: the letter is six years old and may not reflect current circumstances, such as the spouse's resources or the child's care costs. A trustee that simply follows the letter may also miss a conflict: the settlor's intentions may align with Marta's personal loyalty rather than the beneficiaries' best interests.
3. The family company asks the trust to subscribe €1.5m for new shares. Marta sits on both boards. What should the trustee do?
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This is a connected-party transaction and a clear conflict. Marta should not participate in the trustee's decision. The trustee should consider appointing an independent trustee or independent director for this matter, or obtaining independent legal and valuation advice. The deed should be checked for self-dealing, connected-party, or unanimous-consent provisions.
The commercial analysis must be separate from the conflict process. The trustee should review the company's accounts, cash flow, existing debt, the purpose of the expansion, the dilution of the trust's 30% stake, and the minority protections offered. It should ask whether €1.5m is a prudent use of trust assets given the existing concentration and the beneficiaries' liquidity needs. A subscription may benefit the company and the settlor's family but still be a poor investment for the trust. Conversely, refusing solely because of the conflict would be equally flawed.
The trustee should document the independent advice, the terms of the subscription, and why the investment serves the beneficiaries. If no independent decision-maker can be put in place, the trustee should consider applying to court for directions rather than proceeding with a conflicted vote.