In a recent PCD podcast, David Bell spoke with Dhana Sabanathan, Partner and Head of the Private Client team at Michelmores LLP, and Adam Canavan, Financial Planner at Bowmore Financial Planning, to work through the challenges facing a discretionary trust with £15 million in assets and three generations of beneficiaries pulling in different directions. Their case study — the Hartley Family Trust — is fictional, but the dilemmas it presents are ones trustees face every day.

A Trust Under Pressure

The Hartley Family Trust looks substantial on paper: £15 million across a £12 million UK residential property portfolio and two discretionary investment portfolios of £1.5 million each. But the assets tell only part of the story. The patriarch requires residential care costing £165,000 a year. Eight grandchildren are approaching school age. And the middle generation has financial needs of its own.

For the trustees, every decision made for one group has consequences for the others. There is no neutral option, no distribution that does not, in some way, foreclose something else. And yet the trustees must decide — and be able to justify what they decided, not just to the beneficiaries of today, but to those who may scrutinise the records decades from now.

"There is no right decision. It's making sure that they can justify that decision — not just to the beneficiaries now, but if you were a future beneficiary looking at this decision-making, you might not agree with it, but you can see that they considered the relevant information and reached the conclusion in that way. — Dhana Sabanathan, Michelmores"

The Letter of Wishes: A Living Document, Not a Locked Box

The starting point for any distribution decision is the trust deed, read alongside the letter of wishes. Trustees must be clear about who is actually named as a beneficiary, what powers they hold, and what the settlor intended. But letters of wishes date quickly. A document drafted fifteen years ago may say nothing useful about a beneficiary who was then an infant and is now requesting capital to start a business.

Sabanathan is direct about the remedy: the letter of wishes must be treated as a living document, updated regularly while the settlor is alive and capable. "Health can deteriorate. Lots of other factors can affect a family. So it's keeping in touch and keeping that information up to date." Where the letter is silent, trustees fall back on the fundamental legal test: have they considered all relevant information and reached a conclusion that a reasonable person — or a court — could understand, even if they might not agree with it?

Documentation is not a bureaucratic inconvenience. It is the trustees' primary protection. Every distribution decision should be recorded: what was considered, what advice was taken, what alternatives were rejected, and why. The paper trail is the defence.

Cashflow Modelling: Seeing the Trust Whole

The legal framework tells trustees what they can do. Financial planning tells them what they can afford to do — and what the consequences of doing it will be.

Adam Canavan's first step when brought into a trust like the Hartley structure is to build a picture of how the assets interact with the distribution obligations. The property portfolio is substantial but illiquid: selling individual units, or the portfolio as a whole, triggers tax consequences that must be factored into any distribution plan. The investment portfolios are more flexible, but drawing them down too quickly to meet near-term demands could leave the trust unable to meet what comes next.

"It's not one decision in isolation. It's a series of decisions that need to be made and they all impact each other. The whole point of the cashflow is hopefully allowing the trustees to make a well-informed choice so that they make the right decision now, but also it doesn't impact things they need to do in the future. — Adam Canavan, Bowmore Financial Planning"

The model also reveals the tax treatment of different approaches. Whether the trust sells assets and distributes cash — paying tax at the highest available rate — or assigns assets directly to beneficiaries, who may be taxed at significantly lower rates, can make an enormous difference to the net value of a distribution. Getting that analysis done before money moves is not optional.

The Illiquidity Problem

The Hartley Trust's property-heavy structure is common, and it creates a specific pressure point. When cash distributions are needed quickly — for care costs, school fees, or an unexpected need — the instinct to draw on investment portfolios first is understandable. But depleting liquid reserves while holding illiquid property means the trust's ability to respond to future needs depends on the ability and willingness to sell property at a time of the trustees' choosing, which may not coincide with favourable market conditions.

"They need to understand whether they are depleting the trust fund. If this is a reasonable decision to make — and ensuring that it can help them decide that if they make a distribution now, they will still have sufficient funds for later needs. — Dhana Sabanathan, Michelmores"

This is where cashflow modelling earns its place. Showing trustees — and beneficiaries — what different scenarios look like over five, ten, and twenty years transforms abstract concerns into visible ones. It does not provide certainty, but it provides evidence of serious thought, which is what the law requires.

When You Cannot Please Everyone

Multi-generational trusts generate multi-generational conflict. Beneficiaries who feel they are being overlooked or treated less favourably than others will complain. Some of those complaints will be justified; others will not. The trustees' role is not to eliminate dissatisfaction — that is rarely possible — but to demonstrate that they exercised proper process.

Sabanathan is clear: "You're not necessarily going to be able to keep everyone happy. It comes down to: have you considered all of the relevant information, and do you feel that you can justify the decision based on the evidence you've got?"

Sometimes, she adds, the trustees exist partly to absorb the blame that a living settlor does not want to carry personally. That is a legitimate and useful function. But it only works if the trustees have done the work — sought advice, modelled the scenarios, documented the reasoning — that allows them to stand behind the decision.

The most effective trustees combine rigorous process with active communication. When beneficiaries understand why a distribution is being deferred, or why one need is being prioritised over another, the likelihood of litigation falls. And when disputes do arise, documented evidence of proper process is the best possible defence.

Dhana Sabanathan is Partner and Head of the Private Client team at Michelmores LLP, where she advises trustees, beneficiaries, business owners, and family offices on tax, trust, and estate planning. Adam Canavan is a Financial Planner at Bowmore Financial Planning, working with high net worth clients and their families to grow, preserve, and structure their wealth.

Michelmores LLP is a Limited Liability Partnership, authorised and regulated by the Solicitors Regulation Authority (SRA authorisation number 463401) and is not authorised by the Financial Conduct Authority. This podcast is for general information purposes only and does not constitute legal, financial, tax or other professional advice and should not be relied upon as a substitute for independent professional advice tailored to your circumstances. Any commentary on financial matters does not constitute financial promotion or investment advice. Any examples or scenarios are illustrative only.

Bowmore Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority (FCA). Bowmore does not provide tax advice. Some areas discussed, such as estate planning, cash‑flow planning, and inheritance tax planning, are not regulated by the Financial Conduct Authority (FCA). Tax treatment depends on individual circumstances and may change in the future, including the tax position of specific products or wrappers. The discussion is for general guidance only and does not constitute personalised advice. Bowmore Financial Planning Ltd contributed to this discussion as an independent participant, sharing general insights alongside other professionals.