Letter of Instruction


A personal note detailing your wishes, hopes, messages to fiduciaries and heirs, is a key part of every estate plan. It doesn't require legal, tax or other professional involvement, but it can fill in vital messages that even the most comprehensive planning documents can't address.


Letters of instruction aren't really talked about enough. They don't save taxes, and they certainly don't substitute for properly written, current (yes current for all of you whose wills are still written on parchment) planning documents. Even the best drafted will or trust won't address key personal issues. They also change over time. Everyone needs to write a letter of instruction to their fiduciaries and revise it at least every couple of years. Nothing can fill in the "blanks" better than a detailed, well thought out, heart felt letter. No trust or will gives this detail but after you're gone your fiduciaries will want to carry out your wishes. They need to know more than what just a sterile legal document contains. And that is exactly why you should write a last letter of instruction. It's tough to do. One client referred to it as the "two tissue box letter". Here's a checklist of ideas to help you get going:


Education: What type of education do you want for your children? If you prefer that they have a certain type of private school education, or to attend a particular school, indicate it. If you want them schooled under the auspices of a particular religion's schools, or that their public school education be supplemented by afternoon or weekend religious classes, explain it in detail.


Lifestyle: Describe the lifestyle and values you want for your children. Most trusts include vague language like "ascertainable standard", "comfort and welfare", etc. What do you want for your children? Do you want them to keep up with the spending patterns of Mary-Kate and Ashley? Would you prefer a more subdued lifestyle? When a trustee is trying to stand in your shoes 10 years after your death, some stories and discussions of values, lifestyle and so on can provide valuable guidance to the trustee. What do you view as a reasonable vacation? Is first class air travel a must or an extravagance? Is a new car every year or two appropriate? What type of car?


Life Events: Should key life events be paid for? How and to what extent? Do you want your child's spouse to be to share wedding costs? Would you want the trust for Junior to cover all the costs? How lavish a wedding? How much input should the trustee have if any? What about graduations, confirmations, christenings, Bar Mitzvahs? Life events can range from tasteful family affairs, to full blown catered parties, to extravaganzas on a charted yacht.


Second Marriages: The issue only compounds as the number of marriages increase (think of Elizabeth Taylor - 8 times if you count both marriages to Richard). This is one of the classic balancing acts for fiduciaries. How does the fiduciary allocate trust resources between your new spouse and children from other marriages? How should the trustees spend money? While the legal documents need to set the parameters, they rarely provide the details or personal insights that can really help a trustee make some of the tough calls. Whether the trust is structured so that it must pay income to your new spouse, or a unitrust amount (e.g., 4% of principal), most trusts still provide the trustee with discretion to make principal distributions. Guidance is crucial.


Investments: Do you have a particular philosophy you want considered? Perhaps you have a wealth manager that you prefer be used but don't want to formally mandate his or her use. A non-binding instruction may be the ideal approach.


Family Business: Who should run the business? Should the estate or trusts you've formed loan the business money? If no heir is in the business should the business be retained for potential future heirs to join? How strongly do you wish your fiduciaries to hold onto business interests? What if your heirs cannot agree on salaries, titles or other matters? While all these points should be addressed to varying degrees in the shareholder agreement and other business documents and in a coordinated manner in trust agreements, the flexibility of providing personal anecdotes and thoughts in a side letter can provide valuable insight for your fiduciaries.

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