While most folks know they should have a will (though regrettably many don’t have one), few realize they should also consider preparing a companion document known as a letter of instruction.
Among other things, a letter can help organize one’s finances; identify who to call first - relatives, advisors, etc.; list where to find things; and list what to do first.
The intent is to ease the stress for surviving heirs at a difficult time and ensure that none of the estate is "lost". Just as important, having such a letter to leave behind provides peace of mind for the person(s) preparing the letter.
A letter of instruction is a flexible, informal, low-cost personal document which is not legally binding but which can serve multiple purposes. Some uses and suggestions include:
A list of the estate’s assets
- Bank and investment accounts (and any automatic withdrawal/deposit information)
- Stock and bond certificates you’ve kept outside a brokerage firm or bank
- Real estate documents
- Retirement accounts including 401(k) plans and individual retirement accounts
- Life insurance and annuity policies
- Assets held in trust
- Post-death benefits due from employers, the Veteran’s Administration, Social Security
The letter should detail their location, their approximate value, account numbers, how the assets are owned (jointly or individually, for example) and how they will pass at death (directly to a beneficiary, through the will, through a trust, or through joint ownership). Compiling a list of assets provides an opportunity to ensure that your designated beneficiaries are updated and are the ones you want.
Disposition of personal effects - Because a valid will is legally binding, you may want to use your will to instruct who is to receive highly-valuable or key personal possessions. But a letter of instruction can be useful for lesser items.
List of advisors and others - Provide the names and phone numbers of your financial planner, accountant, brokers, insurance agents, attorney, and other financial professionals. Also list such contacts as clergy, employers, trustees, and your estate executor.
Location of other essential documents and information - Tell your heirs where they can find your safe-deposit box (and the key to it), will, tax records, birth certificate, military records, and credit card accounts.
List of debts - Detail debts you owe and that are owed to you (and what you want done with debts owed to you).
Funeral arrangements - Granted, this often is emotionally difficult to do, but it will help your loved ones if you describe the type of funeral or memorial service you want. Provide information for your obituary. Include the name and address of a cemetery/funeral home if you’ve already bought a burial plot or prepaid for a funeral. Your heirs are not legally bound to follow all your wishes, but spelling them out is usually far better than letting loved ones guess.
Summary of finances - The very act of locating your financial assets and important documents, plus spelling out other details for your heirs, provides a great way to organize your finances for your own benefit.
Where to keep - You’ll want your heirs to obtain the letter of instruction right away. Don’t store the only copy in a safe deposit box where it might be difficult to reach. Keep a copy at home, with your executor, your financial planner, and/or your attorney.
Updates - Because letters of instruction are not legally binding, it’s easy to update them annually or when there are major changes such as a marriage, divorce, or the purchase of valuable property. All you have to do is make changes and provide freshly dated copies to the appropriate sources. You generally don’t have to have them witnessed as you do a will.
Personal messages - A letter of instruction can be a great place to leave personal comments to survivors. What are your hopes and dreams for them? What are your most important values that you want to pass along? What did you want to tell them during your lifetime but somehow never got around to doing?
You can see that such a "letter" may be much more than a single sheet of paper. It may be a full notebook. It can be whatever you want it to be. Consult with your financial planner and/or attorney. Many have helped clients prepare letters of instruction and may have templates to help you organize your information.
James Terwilliger, Certified Financial Planner™, is Vice President, Financial Planning, Wealth Strategies Group, Canandaigua National Bank & Trust Company. He can be reached at 585-419-0670 ext 50630 or by email at [email protected] .