Why every client needs a letter of instructionArticle added by Carl "Skip" Rapp on May 20, 2009
Ranked: #124 (484 pts)
Your client's will has been signed, witnessed and is otherwise considered complete... or is it? Now is the perfect time to talk about creating a letter of instruction.
Guiding clients through major points of consideration now can bring them peace of mind. This exercise also presents advantages to your practice, including the opportunity to cultivate multigenerational relationships.
There are a myriad of preferences and details that fall outside a will. Addressing these choices in a well-organized letter of instruction can greatly reduce the time it takes to complete the settlement and distribute the assets to beneficiaries. Consequently, it should also reduce related settlement fees.
It's easier than you might think, as long as you know the options and parameters to present. Here's a refresher to ensure that you'll be at the top of your game when you have the conversation.
What it is
The letter of instruction serves as a companion document to a will, although it doesn't have the binding legal status normally attributed to a will. It lays out how your client wants issues handled after death and includes a complete list of assets, their locations and important contacts. The document should be drafted with comprehensive, detailed and accurate instructions, as this will reduce the burden on your client's loved ones.
The letter is typically written to the individual or individuals who will be charged with the responsibility of handling all affairs after your client's death -- their executor (personal representative in many states) as named in the will.
Because there is no officially prescribed format or content for a letter of instruction, it can contain whatever you and your client feel is important and relevant. However, be careful that it does not contradict anything contained in the will or other estate planning documents. Suggested best-practice subjects to cover include:
1. Funeral arrangements: Specific requests as to the type of burial, service, pre-paid funeral arrangements (if any) and invitees. A short bio for the obituary is helpful.
2. Important contacts: Key individuals who will be of assistance to your client's executor in helping to finalize the estate settlement. Include, among others:
a. Executor or trustee if they are different than the addressee of this letter
b. Family attorney(s): especially the one who assisted with the will
c. Family accountant(s): especially those responsible for tax preparation
d. Financial planner or advisor: your contact information
e. Insurance agents
f. Other investment advisors/stockbrokers
g. Business partners
h. Friends: a listing of old and current friends who should be notified of your client's passing
i. Clergy: Indicate who should officiate at the service
j. Employers: current and previous
3. Important documents: A comprehensive list of legal and personal documents together with their specific location. Among others, these documents might include:
b. Marriage license
c. Divorce decree
d. Military separation papers
e. Birth certificate
f. Tax records
g. Trust agreements
h. Business partnership agreements
4. Assets: Every year, billions of dollars of assets are lost to designated beneficiaries because executors are unaware of their existence or can't locate them. It is vitally important to provide as complete a list as possible of the estate's assets, including their specific location, how they are titled, account numbers and estimated value. Following is a partial list of assets to address:
a. Bank accounts: also indicate accounts that have automatic deposit or withdrawal orders
5. Liabilities: It's also important that all liabilities be identified as well, since the estate's executor will be legally required to satisfy these obligations. A partial list includes:
b. Insurance policies: life, disability, annuities, etc.
c. Retirement accounts: pension plans, 401(k) plans, IRAs; include information on plans from previous employers
d. Investment accounts: also note whether your client has any stock certificates that are held individually; note the locations of those certificates
e. Real estate: include titles, deeds and property locations.
f. Trust accounts: also reference who created the trust, as well as trustees
g. Safe deposit box: record where the key is located.
h. Business investments: include ownership interests, company stock, options, etc.
i. Valuable possessions: vehicles, boats, airplanes, jewelry, musical instruments, valuable collections, etc.
j. Loans and obligations payable to estate
k. Post-death benefits: includes death benefits from the Veteran's Administration, former employers and Social Security.
a. Mortgages: against the properties list above
6. Personal and family legacies: Your client's personal story (including accomplishments, experiences and values) is often the most prized and lasting of all the legacies left to heirs. In my last article, I addressed how to approach this aspect of legacy with clients, including:
b. Credit card accounts
d. Lease agreements
a. Memorabilia: include photo albums, videos, scrapbooks etc.
7. Personal possessions: Your client may want to distribute assets of considerable value through the will. However, some states allow distribution of personal possessions via the letter of instruction.
b. Family history: ancestral information, family tree and family timeline information
c. Awards and achievements: include certificates, medals, trophies, etc.
d. Memoirs, advice and personal journals
8. Charities: List favorite charities to receive donations in your client's honor. Charitable contributions from the estate should be addressed in the will.
This letter of instruction exercise can be used with all different types of clients. It can be done in a personal, one-on-one format or in a group workshop setting. Plan to revisit the topic annually, or whenever significant events occur. Be sure that revised versions are dated and, most importantly, encourage your client to let his or her recipients know of its location.
As a companion piece to the will, it's vitally important that both the letter of instruction and the will be consistent with each other so that your client's executor is not confused. Consider updating them both at the same time.
Remember, as the financial advisor, you're in the ideal leadership position to coordinate all of the other professionals who will be assisting the client. Don't underestimate the importance and associated value of this role in binding you closer to the client and his or her family.
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