Most people know of wills and trusts. Many have an idea what a healthcare power of attorney and financial power of attorney are. But what about a ‘Letter of Instruction’? In this article I will describe this important but often overlooked document and show how it fits into an estate plan.
In my article The Basics of Estate Planning, I reviewed the formal elements of an estate plan. While I excluded the Letter of Instruction from that article (it’s not a legal document), it can play an important role in your overall estate plan. Specifically, it can:
- Serve as a plain-English description of your estate plan.
- Provide details not covered elsewhere.
- Add a personal touch.
Below I will describe each of these items and offer recommendations on how to deal with them in your own letter.
Think about your own estate plan for a moment. Could you describe how it works to someone? Is your estate meant to avoid or go through probate? If you use trusts, how do they work?
A Letter of Instruction can help translate your plan into easy-to-understand language for your family and friends. It cannot replace your estate plan. After all, it has no legal force. But it can be a valuable reference in a time of need for the important people in your life.
Who should write the letter and when? In my experience, it’s best to write the letter when creating or updating your estate plan. The details of your estate plan will never be clearer. There is another benefit to this strategy: your attorney can help. Many attorneys do not provide a plain-English summary of their clients’ estate plans by default. But if you ask for it after the documents have been finalized, your attorney will almost certainly oblige.
My advice: keep it simple. Your loved ones will almost certainly have to retain an attorney at some point. The goal of the letter is not to replace professional advice, but to supplement it.
Letter of Instruction example
Here’s an example of how someone might explain how their will works:
My estate plan uses a will to distribute my property when I die. I have selected my brother Tom as my ‘personal representative’ (the person who will oversee the probate process). If he is unable to serve, then Aunt Carol will take his place.
All my assets, including retirement accounts, should flow through probate. My intention is to simplify the estate settlement process for my survivors.
My children are equal beneficiaries of all my property, except $50,000 which I am donating to the National Institute of Mental Health.
I have filed my official will with the local probate court. You can also find a copy in my home safe.
This description conveys in simple language how the estate plan works upon death (using a will), what the will does (disperse assets to children and charity), and where to find the official copy (on file at local probate court).
With your own letter, feel free to be more or less specific given your audience. You might even consider multiple letters. A more detailed letter for your personal representative and something more general for others.
Filling in the gaps
Only about one third of Americans have completed an estate plan. But even the most comprehensive estate plan will lack information that could save time and expense for your survivors when you are gone or for your trusted delegates if you are too sick to manage your affairs.
A Letter of Instruction can fill in the gaps in your estate plan, making it easier to find essential information. What to include in your letter is specific to your situation, but I have summarized some of the most important information below. Be careful. Sharing sensitive information such as account numbers, Social Security information, etc. can be risky. Never send sensitive information in an email. You might consider printing out physical copies and asking your family to save them in a secure location. Alternatively, you could also password protect the document and keep copies of the password in a safe place.
- Contact information for important people. One day, your survivors (especially your personal representative) will have to deal with your trusted advisors. Simplify their job by assembling a list of the people who help you with legal and financial matters. This list could include the names of your financial advisor, accountant or tax preparer, and attorney along with their contact information. Helpful hint – if one of your professionals is nearing retirement, ask them if they have a succession plan and get that person’s contact information as well.
- List of all your assets. Speed up the distribution process for your beneficiaries by clearly laying out where everything is. For financial accounts, a simple spreadsheet or table with the name of the bank or custodian and a description of the accounts could suffice. Additional information such as account numbers, titling, and beneficiary information is even more helpful. Make a list of other assets such as real estate, automobiles, and personal effects. If you want to gift sentimental items to a specific person, write down your wishes and the reasoning behind them. Your executor will appreciate the help. Remember to keep the list updated as accounts and property change over time.
- List of debts. After your death, your estate will have to settle debts. Make a list of mortgages, car and student loans, and credit card debt. Include any relevant contact information.
- Insurance policies. What policies do you have and what is the contact information for your insurance companies? This is particularly important if you have any life insurance.
- Essential documents. Include a list and the location of important documents. This might include real estate deeds, certain insurance policies, birth certificates, Social Security cards, marriage and/or divorce paperwork. This list should also include the location of your official estate planning documents. Helpful hint – it may be best to keep all these items in a single, secure location.
- Funeral wishes. Your funeral arrangements may be a difficult topic, but if you have specific requirements you need to let your loved ones know what they are. Do you want a funeral or a memorial service (or both)? Who should be notified of your death? Do you want to be buried or cremated? Make it easier for your survivors and spell out your wishes in writing.
- Pets. Identify how they should be cared for when you are gone. Include contact information for their vet and other caretakers along with their favorite toys and foods.
- Passwords and online information. Today, we pay bills, access financial accounts, and apply for Social Security from a phone or computer. Sharing your usernames and passwords with trusted persons could make it easier to handle your affairs during a severe illness or after death. But sharing sensitive information also carries risks. Decide whether you want to maintain a physical list of your login information or use a password organizer or vault app to simplify sharing.
Adding a personal touch to your Letter of Instruction
A well-written estate plan can accomplish many things, but it cannot impart wisdom or values. A Letter of Instruction can. Though it’s not legally binding, your letter can serve as a guide for your loved ones.
In this letter you are free to write whatever you like. Share your thoughts on life and its meaning. State your wishes for how your family might use their inheritance, for example, to fund college or for charitable giving. You might even include wording suggestions for your obituary or even write it in whole. Remember, nothing in this letter is legally binding, but adding a personal touch can provide useful guidance to those you care about.
Putting pen to paper
Your letter won’t help anyone until you sit down and write it. In addition, your letter will only be helpful if it’s up to date. Make sure to review your letter along with your estate planning documents every 1-2 years.