The Letter of Wishes: how retirees guide their trustees without binding them

For retirees with discretionary trusts in their estate plans — most commonly testamentary discretionary trusts established by the will to hold assets for the benefit of spouse and children after death, but also family discretionary trusts set up during life for tax and asset-protection purposes — the trust deed (or the will provisions establishing the testamentary trust) sets out the legally binding framework: who the beneficiaries are, what powers the trustee has, when the trust vests, what restrictions apply. But within that binding framework, the trustee typically has wide discretion about how to actually administer the trust — which beneficiaries to support at what times, in what proportions, for what purposes, and with what conditions. The deed grants this discretion deliberately, because rigid pre-specification would defeat the tax flexibility (income streamed to lowest-rate beneficiary) and adaptability (responding to changing circumstances over decades) that make discretionary trusts useful. The Letter of Wishes is the companion document the settlor or testator provides to guide the trustee's exercise of that discretion. It is non-binding — the trustee retains the legal discretion under the deed and the duties under the relevant state Trustee Act (for example the NSW Trustee Act 1925, https://classic.austlii.edu.au/au/legis/nsw/consol_act/ta1925106/, accessed 11 May 2026) — but it provides moral and contextual guidance that trustees, particularly family-member trustees, typically respect closely. For complex estate planning involving substantial wealth, blended families, vulnerable beneficiaries, or long trust durations, the letter of wishes is functionally important even though it doesn't legally bind the trustee (MoneySmart — wills, https://moneysmart.gov.au/wills-and-powers-of-attorney/wills, accessed 11 May 2026).

The basic structure of a letter of wishes is straightforward. The letter is private (typically held with the will or trust documents but not lodged publicly with probate or any registry), addressed directly to the trustee, written in plain language rather than legal drafting, and signed and dated by the settlor or testator. The contents typically address the principal beneficiary considerations: who the settlor wants to benefit, in what proportions, with what conditions; spending preferences (whether the trustee should support beneficiaries through education, housing, healthcare, or income generally); vesting preferences (when and how the trust should ultimately distribute to beneficiaries); particular family considerations (a disabled child requiring lifetime support, a blended-family arrangement, an estranged child); investment preferences (conservative versus growth orientation, ethical considerations, specific assets to retain or dispose); and trustee succession preferences. The letter is typically two to five pages, written conversationally, providing context that the formal deed cannot capture (Law Council of Australia — wills and estates practice resources, https://www.lawcouncil.au/policy-agenda/legal-practice/wills-and-estates, accessed 11 May 2026).

The legal status of the letter is well-settled in Australian trust law. The trustee's binding obligations come from the trust deed itself, the general principles of trust law and fiduciary duties, and the relevant state Trustee Acts (each Australian state and territory has its own Trustee Act). The letter of wishes is not part of these binding sources — the trustee can disregard the letter without legal consequence, subject to acting consistently with the fiduciary duties owed under the deed and the Trustee Act. However, the letter can be relevant evidence in disputes about trustee discretion. Where beneficiaries challenge a trustee's exercise of discretion, the letter may be relevant to demonstrating the settlor's intent and the appropriate context for the trustee's decisions. A trustee who consistently disregards a clearly-drafted letter of wishes without good reason may face questions about their fitness in some circumstances, depending on the trust deed terms and the specific facts. For most family trusts, the practical reality is that trustees follow the letter closely as a matter of moral duty, even though they're not legally compelled to do so.

The reasons settlors and testators use letters of wishes rather than building specific provisions into the deed or will reflect the trade-offs of binding versus flexible documentation. Flexibility is the principal advantage — the letter can be updated as circumstances change without amending the deed (which often requires formal trustee action and may have tax consequences). Privacy matters for sensitive family considerations — the letter doesn't appear in probate documents, and details about beneficiary needs, family disputes, or specific intentions can stay private. Tax efficiency depends on broad trustee discretion in the deed; building specific binding directions into the deed could undermine the discretion that makes the trust tax-effective (including the testamentary trust income-streaming advantages for minors under ITAA 1936 s.102AG, which depend on genuine trustee discretion). Adaptability to changing circumstances over decades — children growing up, family dynamics evolving, financial positions shifting — is impossible to specify in advance but possible to guide via updateable letters.

A typical letter of wishes for a testamentary discretionary trust might address several specific matters. Beneficiary priorities: "My spouse should be the primary beneficiary during her lifetime, with our children supported as appropriate from time to time, and the trust ultimately distributing to our children equally on her death." Spending guidance: "I'd prefer the trust to support our children's education and home deposits rather than ongoing lifestyle expenses." Vulnerable beneficiary considerations: "If our daughter requires care due to her medical condition, her needs should be the priority and the trust should provide whatever support is needed." Estranged-relation handling: "Our estranged son should be entitled to a fair share but should not receive preferential treatment." Family business considerations: "The family business should be retained where possible rather than sold to fund distributions, unless retention becomes impractical." General overlay: "These wishes are subject to changing circumstances over time — trustees should act in the best interests of beneficiaries as situations evolve, exercising the discretion the deed provides." The combination of specific guidance and broad discretion-acknowledgment is the typical structure.

The integration with the trust deed matters substantially. The letter cannot override the deed — if the deed specifies particular powers, beneficiary classes, or restrictions, the letter operates within those parameters rather than against them. For a deed that names specific beneficiary classes (spouse, lineal descendants, charitable institutions), the letter can guide preferences within those classes but cannot extend benefits to non-beneficiaries. For a deed that grants broad investment powers, the letter can express investment preferences but the trustee retains the legal power to invest contrary to the preferences if they consider it appropriate under their duty to the beneficiaries. The letter and the deed are complementary documents — the deed is the binding framework, the letter is the contextual guidance — and they should be consistent rather than contradictory.

For practical use in retirement estate planning, the letter of wishes is most valuable in specific contexts. Where a professional trustee (trustee company, professional firm) is appointed, the letter is essential — they don't have personal knowledge of the family and need contextual guidance to make appropriate decisions. Where multiple potential beneficiaries have competing claims (spouse and adult children, multiple branches of an extended family), the letter helps the trustee navigate priorities. Where a vulnerable beneficiary (disabled child, mental health considerations, significant care needs) requires specific support arrangements, the letter addresses these in detail. Where blended families create complexity (spouse from second marriage, children from prior relationships, step-children), the letter manages the cross-family considerations — and pairs naturally with mutual wills arrangements covered separately at articles/2026-05-04-mutual-wills-blended-family-retirees. Where the trust will run for decades, the letter provides continuity of intent across the long timeframe. For simple trusts with one or two beneficiaries and clear circumstances, the letter may add little; for complex trusts, it's typically valuable.

A specific consideration for retirees with substantial super passing intergenerationally is the integration with the will and Binding Death Benefit Nomination (BDBN). Super death benefits don't pass through the will — they pass via the BDBN under SIS Regulation 6.17A (https://classic.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s6.17a.html, accessed 11 May 2026) or trustee discretion in the absence of a binding nomination, with the eventual recipient determined by the super law dependency tests (ATO — paying superannuation death benefits, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/withdrawing-and-using-your-super/death-benefits/paying-superannuation-death-benefits, accessed 11 May 2026). Where super flows to the legal personal representative under the BDBN (and then into a testamentary trust under the will), the letter of wishes can guide how the super-derived assets are administered within the testamentary trust. Where super flows direct to beneficiaries (under a BDBN naming individuals), the letter of wishes for the testamentary trust doesn't reach those super amounts — only the will-derived assets are within the testamentary trust's scope. For retirees with substantial super and complex family situations, the coordinated drafting of BDBN, will, testamentary trust, and letter of wishes ensures the integrated estate plan works as intended.

The maintenance discipline for letters of wishes involves periodic review and updating. Major life events warranting review include births of children or grandchildren, deaths of beneficiaries, divorces or family relationship changes, substantial financial changes, beneficiary illness or disability development, and the settlor's own changing intentions. When updating, best practice is to write a new letter dated currently, replacing the prior version entirely rather than amending or adding to existing letters. The letter should be stored with the will (for testamentary trusts) or with the trust deed (for living trusts), in a location known to the executor or trustee. Lost letters are ineffective — and the storage location should be documented somewhere findable after the settlor's death. For retirees with established arrangements, periodic review every 3–5 years (or after major events) is appropriate cadence.

For practitioners advising on letters of wishes, the conversation typically arises when reviewing testamentary trust arrangements with clients who have already established the trust through their will but haven't documented their specific guidance to the trustees. The letter conversation can also arise when establishing new testamentary trust arrangements (the lawyer drafts the will and trust deed; the financial planner can prompt the discussion of the letter alongside) or when family circumstances change and the existing letter needs revision. The drafting itself benefits from estate-planning legal input — particularly to ensure consistency with the trust deed and to address all the relevant considerations — but the letter is fundamentally the settlor's voice expressing their wishes, and the legal drafter should be facilitating rather than rewriting the settlor's intent.

What do worked planning examples show?

These two cases show how the letter of wishes works in typical retiree estate planning scenarios. Illustrative only — not personal advice — using FY25-26 figures.

Case 1 — Robert (76) and Helen (74) have a will establishing a testamentary discretionary trust on the second-to-die's death, holding assets for the benefit of their three adult children and grandchildren. They have not written a letter of wishes. Their three children include one with a successful business who doesn't need substantial inheritance, one who has had financial struggles and would benefit from significant support, and one who has a child with autism requiring lifelong care. On these facts, the rational pathway is to draft a letter of wishes addressing the differential needs: the trustee (which will be all three children jointly under the will) should know that the parents' preference is to provide proportionately greater support to the second child (financial struggles) and to fund care for the autistic grandchild from the trust. Without such guidance, the children-trustees might default to equal distributions despite the unequal needs, or might be paralysed by disagreement about how to allocate. The letter helps the family navigate the discretion the will grants. The trap to avoid is leaving the discretion unguided — the children-trustees may make decisions inconsistent with what Robert and Helen would have wanted, with lasting family friction.

Case 2 — Margaret (78) is a widow with a testamentary trust in her will appointing a trustee company as professional trustee for the benefit of her son's family (he predeceased her). The professional trustee will administer the trust for her grandchildren's education, housing, and lifestyle support over the next 20+ years. On these facts, a detailed letter of wishes is essential. The trustee company has no personal knowledge of the family — they need guidance about Margaret's priorities (education emphasised, lifestyle support modest), her view on housing assistance (help with deposits but not full purchase), her preferences for the grandchildren's specific situations (one is artistically gifted, one is in academic struggle, one is health-affected), and the broader context. Without the letter, the trustee company will make reasonable but possibly impersonal decisions. With a detailed letter, the trustee company can carry out Margaret's intent across the decades. The trap to avoid is trusting the deed alone to guide a professional trustee — the deed provides the binding framework but doesn't capture the personal context that makes the trust genuinely serve the family.

For Australian retirees with discretionary trusts in their estate plans, the letter of wishes is the unsung companion document to the trust deed. It is not legally binding under the Trustee Acts or trust law principles, but it provides moral and contextual guidance that trustees typically respect, particularly in family trustee arrangements where personal knowledge is limited or in professional trustee arrangements where the family voice is essential. The letter is most valuable for complex situations — substantial wealth, blended families, vulnerable beneficiaries, professional trustees, long trust durations — and adds less for simple arrangements with clear beneficiary priorities. For retirees with testamentary trusts already in their wills, the letter conversation should be on the periodic review agenda; for those establishing new testamentary trusts, the letter should be drafted alongside the will and trust deed as part of the integrated estate planning package.

Sources

• classic.austlii.edu.au — Ta1925106
• MoneySmart (ASIC) — Wills
• lawcouncil.au — Wills and estates
• Australian Taxation Office (ATO) — Paying superannuation death benefits
• classic.austlii.edu.au — S6.17a