When trusts go wrong: practical lessons for trustees

In an increasingly complex private wealth environment, even well-structured trusts can encounter difficulties. Recent case law and practical experience highlight a consistent theme: trusts rarely fail because of drafting alone – more often, they falter when governance, communication and judgement fall short.

Rethinking the protector role

Recent case last reiterates that fiduciary protectors must exercise independent judgement, not merely endorse trustee decisions. This signals a shift toward greater accountability and the expectation of a more 'active' protectorship

In practice, issues often arise where protectors lack clarity on their duties, have insufficient time or expertise, or face conflicts of interest – particularly where they are also beneficiaries. Increasingly, families and advisers are reconsidering whether protectors are necessary at all, or whether alternative governance structures (such as family councils) may offer more effective and less contentious oversight.

The human factor: communication and capacity

Trust disputes are frequently driven by human dynamics rather than legal shortcomings. Poor communication with beneficiaries can foster mistrust or perceptions of bias. Equally, overreliance on a single influential voice – whether a protector or dominant beneficiary – risks undermining trustee independence. Trustees should engage early and consistently with the wider family (where appropriate) rather than only at decision points.

Capacity is another overlooked risk. Protectors and settlors are often appointed from the same generation, raising succession and capability concerns over time. Without planned transition mechanisms or clear governance frameworks, trusts can drift into uncertainty or deadlock. Simple measures, such as clear succession provisions and periodic 'sense-checks' on ability to perform the role in practical terms, possibly including mental capacity and the overall sense of engagement, can significantly reduce these risks.

Letters of wishes are guidance, not instructions

Letters of wishes remain a valuable tool, but they are frequently misunderstood. Trustees must consider them carefully, yet cannot treat them as binding directions. Courts have shown a willingness to unwind decisions where trustees have appeared to surrender their discretion, even where outcomes appear objectively or contextually reasonable.

The challenge is compounded by time. Family circumstances, asset values and tax regimes evolve, meaning historic wishes may no longer align with beneficiaries’ best interests. Letters of wishes should therefore be actively 'stress tested' against current realities and an emphasis on independent decision-making are essential.

Cross-border complexity and the need for flexibility

Modern trusts must operate across jurisdictions, exposing them to shifting tax regimes and regulatory requirements. Unanticipated changes, such as beneficiary relocation or legislative reform, can cause tax inefficiencies, reporting failures or enforcement risks. In many cases, the difficulty arises not from the structure itself, but from changes not being communicated to trustees in a timely manner.

Flexibility in trust design is therefore critical. Powers to change governing law, trustees or beneficiary classes can help structures adapt over time. However, flexibility must be balanced with careful oversight to ensure powers are exercised properly and in accordance with the trust’s purpose.

Trust governance over structure

The key lesson for trustees is clear: robust governance matters as much as technical design.

Trustees should prioritise clarity of roles, proactive communication, and disciplined decision-making. Protectors, if used, must understand and discharge their responsibilities with independence and professionalism.

Ultimately, a well-functioning trust is not static. It requires ongoing engagement, thoughtful stewardship, and a willingness to adapt – ensuring the structure continues to serve its purpose long after it is established.

Many of the most difficult issues can be avoided where structures are stress-tested early and relationships are managed as carefully as the legal framework itself.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2026