Writing a Letter of Instruction: Essential Guide for Estate Planning in 2024

One of the most crucial, yet often overlooked, estate planning documents is the letter of instruction. Many people spend time creating a will, trust, and other essential legal documents, but they forget to include this simple yet powerful tool that can help their loved ones manage affairs after they pass away. In this article, the advisors at Fee Only Planners provide guidance on writing a letter of instruction, offer a free template for a will, and explain how to ensure your estate plan is as comprehensive as possible.

What is a Letter of Instruction?

A letter of instruction is a non-legally binding document that complements your will and other estate planning documents. It contains detailed information about your financial accounts, assets, personal wishes, and more, to help your family and executor handle your estate efficiently after you pass away.

Unlike formal estate planning documents such as a will or trust, a letter of instruction doesn’t need to go through the courts, making it an accessible and practical resource for your loved ones. It provides a roadmap for managing your affairs, from accessing financial accounts to handling physical assets.

Why You Need a Letter of Instruction for your Estate Planning

Imagine the difficulties your family could face if they don’t know where to find important financial documents, passwords, or the location of your assets. Without an instruction letter, settling your estate could be a lengthy and stressful process for your heirs. This document ensures that your affairs are handled smoothly, minimizing confusion and reducing stress for your loved ones during a difficult time.

How to Write a Letter of Instruction

Writing a letter of instruction doesn’t need to be complicated, but it’s important to include essential details. Here’s a step-by-step guide to help you create your letter and ensure nothing is overlooked.

Step 1: Identify What to Include

Start by identifying all the critical information that your family will need. This can include:

• A summary of your assets and debts: List all your accounts (bank, investment, retirement), along with amounts owed on loans or mortgages.

• Location of important physical assets: Jewelry, art, collectibles, real estate deeds, or other valuable items should be noted.

• Details about your retirement and investment accounts: Include information on any 401(k)s, IRAs, or other retirement savings.

• Contact information for important professionals: Provide names and contact information for your financial advisor, attorney, accountant, and insurance agents.

• Instructions on handling pets: If you have pets, include details on who should take care of them and how.

• Information on online accounts: Usernames and passwords for banking, investment, and other important online services.

While this list isn’t exhaustive, it should give you a solid foundation to start creating your letter. By keeping your heirs informed, they can settle your estate according to your wishes, even without relying on complicated legal procedures.

Step 2: Organize the Information

Next, organize the information into clear categories. Here are some categories you might consider:

• Financial accounts: List your bank, retirement, and investment accounts with relevant contact information.

• Physical assets: Detail the location of valuable items and how they should be handled.

• Important contacts: Provide the names and phone numbers of professionals such as your financial advisor or lawyer.

• Passwords: Group your online account passwords together in a way that’s easy to access.

Grouping information makes it easier for your loved ones to follow, preventing them from having to search for or piece together details during an emotional time.

Step 3: Write the Letter

Now it’s time to put pen to paper (or fingers to keyboard). Start by writing out all the details from the previous steps. Keep the tone professional but empathetic, as this document will likely be read after you’ve passed away. You might want to add personal touches or notes to your family, but the main focus should remain on providing clear, useful instructions.

As you draft, avoid making it too lengthy or complicated. The goal is to provide straightforward information that will help guide your loved ones through the process of settling your estate.

Step 4: Consider Using a Password Manager

Contrary to popular belief, you don’t need to list all your passwords directly in the letter. Instead, you can adopt a password manager like LastPass or Dashlane to securely store your login credentials. These platforms also offer an “Emergency Access” feature, allowing your family or executor to retrieve account information in the event of an emergency or death.

Using a password manager not only simplifies the process of managing passwords but also enhances security by ensuring that sensitive information is kept safe.

Step 5: Store Your Letter of Instruction Safely

Once your letter is written, decide where to store it. Some options include:

• A fireproof household safe

• A safety deposit box

• A secure cloud storage system (such as Dropbox or Google Drive)

• Password manager notes that are easily accessible

Make sure that at least one trusted family member or executor knows where to find this document. You can also consider giving copies to your financial advisor and attorney to ensure it’s readily available when needed.

Using a Free Template for a Will and Letter of Instruction

While creating a letter of instruction is critical, it’s also important to pair it with a comprehensive estate plan, including a will. We offer a free template for a will and other estate planning resources to help you build a solid foundation for your financial legacy.

Pairing the Letter of Instruction with a Will

Your will is the legally binding document that dictates how your assets should be distributed after you pass away. While the letter of instruction serves as a detailed guide, the will provides the legal authority to carry out your wishes. By combining the two, you ensure both legality and practical guidance are in place.

Maintaining and Updating Your Letter of Instruction

Creating a letter of instruction is not a one-time task. Over the years, your financial situation will change, and your letter will need to be updated accordingly. We recommend reviewing and updating the document at least once a year or anytime there are significant changes in your life, such as the purchase of a new property, changes in your family structure, or major financial decisions.

The Importance of a Letter of Instruction

Writing a letter of instruction is a simple but crucial step in your estate planning process. It helps ensure that your financial and personal affairs are handled smoothly after you pass away, reducing the burden on your loved ones. Pairing this document with your will and other estate planning tools ensures that your estate is settled according to your wishes.

At Fee Only Planners, we offer personalized guidance to help you create a comprehensive estate plan. Whether you need help with a letter of instructions template or advice on other estate planning matters, we’re here to help. Take the time to write your letter of instruction today, and provide peace of mind to yourself and your family.worry-free retirement.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Fee Only Planners to provide information on a topic that may be of interest. Copyright 2024 Fee Only Planners.