Most estate plans are missing a key ingredient. Too many estate planners do not recommend it, and it isn’t even mentioned in many estate planning discussions. One reason might be that, despite its importance, the document is not legally binding on anyone.
This document can clear up a lot of issues. It can save time and money in processing the estate, answer many questions of the loved ones, and prevent the heirs from going to court. The document also can make clear one’s final wishes in many areas that are not covered in wills and trusts.
The document often is called a letter of final instructions. That is a bit of a misnomer, because properly done it is more than a letter. It should be several documents contained in a three-ring notebook or other device that makes it easy to update the papers yet keep them together.
The letter of instructions is your last word on a number of issues. It is a practical guide to your heirs about how to handle your estate and manage the property. It also can provide advice and guidance. Preparing a letter of instructions also is an excellent way to help do your planning and to uncover forgotten information. Let’s take a look at the details.
The first goal of the letter of instructions is to help the loved ones, especially your executor, through the difficult time after your passing and the process of settling and managing your estate. We’ll start with the basics of what should be included in the package:
Whom to contact. Your executor will need to contact your estate planning attorney, accountant or tax preparer, life insurance agent, and any other professional who helped you. There also might be investment managers and employers or former employers who are paying benefits. Also include personal contacts: friends, relatives, organizational leaders. Include the name, address, telephone number, and e-mail address of each.
Where to look. Unfortunately, in many cases much of an executor’s time is spent looking ? for documents, account statements, contact information, personal items, or long-forgotten assets. You might know where everything is (though you probably don’t). Make things easy and inexpensive for your executor by leaving behind an inventory of assets that includes where the assets and any documents related to them can be found. If you keep valuables in a safe deposit box or safe, be sure to note this and how the executor can gain entry. Let the executor know where you keep receipts, canceled checks, and any other supporting documents.
How it is divided. Your will, beneficiary designations, and other documents legally determine who gets what. But you can make a plain English explanation of the division in your letter. You might explain why things are divided as they are ? especially if you think someone might be surprised, disappointed, or have questions.
Now, let’s consider some details.
Take a lot of care with your list of assets. First, group them logically. List your checking and savings accounts together. Then, list investment accounts. Real estate, retirement accounts, life insurance, annuities, and other types of assets each should have their own grouping. Within the groups, separate assets by how they are titled. One subgroup should be those owned solely in your name. Another subgroup should be those jointly held with your spouse, and so on.
If you own a business, be sure to get periodic valuations and asset inventories of it. The business might own assets of which your heirs might not be aware. You should provide separate detailed information about the business, its assets, its operations, and suggested actions to take with it.
Be sure the location or account information of each asset is listed. This is particularly important for items such as individual stock certificates. An executor might not find them if not directed to them. Stocks or accounts that pay interest or dividends eventually will come to the executor’s attention when checks or tax forms are received. For others, heirs might never locate them if you do not leave instructions.
You probably have several credit cards and belong to one or more associations, societies, or other groups. These all offer membership benefits. Few people get a credit card or join an association for the benefits, but they are real benefits. The benefits might include some kind of life insurance, disability insurance, or medical insurance. Take the time to review your benefits and list them somewhere. Provide full information, such as the brochure received from the provider. Your executor can make claims and boost your estate.
All of these lists can be included as separate statements that are attached to the letter or included in a separate divider in the binder. Also include in the binder copies of recent tax returns for you and your business along with your will and any other estate planning documents. Of course, a copy of your will and any trusts should be included. Recent copies of statements from any financial accounts and employee benefits also should be attached.
Personal items often are the cause of most estate settlement problems. It is a good general rule that the less financial value an item has, the more likely it is to cause dissension. Attorneys generally recommend that details about how to divide personal items not be included in the will. Doing so could require frequent will changes as assets are bought or sold and your intentions change. But leaving the division and disposition to your executor or an agreement among the heirs also can be troublesome. One approach is to designate their distribution in the letter of instructions. This can be changed often without incurring lawyer’s fees. Or you can give the executor suggestions on the distribution or on a method to determine the distribution.
In most states, funeral arrangements and some other matters are not legally binding even if included in a will. You also don’t want to update the will each time a new idea occurs to you. Include such items in the letter of instructions. Here are related topics to consider:
Every estate planner with any experience has stories about searches for assets or disputes over seemingly minor matters. You can avoid being part of one of these stories by leaving a letter of instructions.
A letter of instructions has the benefit of being easy to update. You don’t need to incur lawyer’s fees or have a signature witnessed. Sit down once a year, review it, and determine what needs to be updated. After the revisions, make some copies. Your lawyer and executor each should have a copy, and there should be one in your desk drawer or other place you keep documents.
Preparing a letter of final instructions can provide benefits now. The letter ensures that your financial affairs and documents are organized. It probably will cause you to throw away unneeded items and carefully consider some items that have been put off or neglected. The process will cause you to do things that should have been done some time ago. Make it easy by not trying to do the entire project at once. Break it into manageable pieces and give each the attention it deserves.