After my father died in 2011, my siblings and I each received a small payment from his life insurance policy. I had expected this. Years earlier, my father and his wife had agreed to name their collective five children as beneficiaries of their life insurance policies. Each child would receive 5% of the death benefit at the first parent’s death. What was unexpected, however, was the amount of the check I received. By my calculation, it was more than what my father had indicated when he told me of their plan.
As it turns out, my two step-siblings disclaimed their share of the death benefit. They were unaware that they were beneficiaries and did not feel it was theirs to inherit. My father re-married later in life when both his and his wife’s children were out of the house working or in college, so none of the step-siblings felt any strong sense of familial relationship.
I was surprised by my step-siblings’ decision, but more overwhelming were my feelings of confusion and a little sadness. I knew what my father had intended; why didn’t they? Had he, or their mother, not shared the same conversation with them about their plan for all the children to inherit a small share? Why would they go against his wishes? I’m sure their intent in disclaiming came from a good place, but it left me feeling sorrow. I longed for one last conversation with my dad where he might explain his intentions or where my step-siblings might express that they didn’t want a share, allowing him to understand and acknowledge their wishes.
If a small life insurance death benefit can make someone feel these mixed emotions, imagine the jumble of feelings when the assets are greater, the estate more puzzling, and the trusts more complex.
To help limit this confusion, provide comfort to the loved ones left behind, and prevent disputes, we often find ourselves recommending a Letter of Intent as a key document to include with your other estate planning and legal documents.
A Letter of Intent or Letter of Instruction is written by you, in your own words—perhaps along with your spouse—and not provided by your attorney or other advisors. It is a chance for you to give reassurance and guidance to your loved ones in perpetuity. It is also a chance for you to provide direction over the numerous items not included in your legal documents.
Use this document to express your wishes for funeral preferences, organ donation (if not included in your other documents), and the handling of certain personal mementos and effects. You can also include information regarding the location of specific documents, care of pets, and how you envision certain assets will be managed or used. Such a letter should not be seen as a replacement to any existing legal documents but rather a chance to relay your final thoughts and wishes, to provide additional guidance not strictly outlined in the legalese of your will or trusts.
Your letter can be viewed as a way to help to fill in any gaps your executor or trustee may run into when administering your estate or any trusts long after you are gone.
You may choose to keep a separate list with more practical information but the Letter of Intent should reference where that information can be found. You can include that information in this letter or consider using our Planning Guide for Survivors to document much of this information and attach it to your personalized letter.
Additional information that will be helpful to your heirs includes the information that may be needed for your final arrangements or death certificate:
Although this Letter of Instruction (or Intent) should be placed with copies of your other estate documents, it is a private document that will not be placed into probate alongside your Will. This leaves you with the flexibility to provide additional details to your loved ones that you might not otherwise want included in a document that is subject to public viewing. There is no specific format that should be followed. It is not a legally drafted or legally binding document and does not take the place of any of your legal documents. It is a letter in your own words to convey your final thoughts and wishes and to pass on any final information that is important to you. You should be sure to review it along with your estate planning documents on a regular basis and update it with new information and changes in your life.
If you have named someone other than an heir as executor or trustee, you might consider writing two separate letters. A letter of instruction can provide your executor and trustee with guidance for the use of the funds. Then use a legacy letter addressed to family and heirs to share the values and lessons that shaped your decisions regarding the distribution of your assets. Consider including life stories that will deepen their connection to your intended purpose for the trusts or inheritance.
And lastly, if writing a letter seems daunting or you just can’t seem to find the motivation to do it, make a recording! Either a voice or video recording of yourself can be used to share the details described above with your heirs, executor, and trustees. The ability of your loved ones to hear your voice or to “see” you one last time is a tremendous gift. With the abundance of smartphones now, making a recording is easier than ever. If you’re unsure, you can recruit someone to help. Be sure to keep the recording stored in a safe location—on your computer or on an external drive, preferably both—and attach a note to your estate documents with the location of the recording.
Although my father had a Will in place at his death, he did not have a final letter to his survivors. Had he written one, I’m sure he would have shared his thoughts about the life insurance policy and why he wanted to include his step-children as beneficiaries. Without such a letter to reference, I’m left still wondering if we truly fulfilled his desires in the end.
This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.