What is a letter of instruction in estate planning?
If you’re like most people, estate planning isn’t one of your favorite conversation topics. However, as macabre as it seems, making decisions about the end of your life can actually save your friends and family members a lot of stress during an already difficult time.
And while you’ve likely heard of a will, it’s meant to tell your loved ones how to distribute your belongings, not where to find them or how to access them. That’s where a letter of instruction (LOI) comes in handy. Not only can you use it to leave detailed instructions about your assets, but you can also use it to make personal requests, like which music to play at your wake or funeral.
What is a Letter of Instruction?
A letter of instruction is an estate planning document that provides basic information to your loved ones in order to help them access and distribute your assets or plan your funeral. While a letter of instruction is typically used when someone dies, it can also be used if you lose capacity.
Unlike a will, a letter of instruction is not a legal document. This means your executor or loved ones are not legally bound to follow through with any of the requests or instructions that you include in it. Instead, it is meant as a way to guide and assist those who must distribute your assets and manage your estate after you die.
Typically, letters of instruction include financial information, such as how to access your financial accounts, as well as personal preferences like whether you would like an obituary published in the local paper.
What Should I Include in a Letter of Instruction?
Although you likely know your financial information, such as which banks you have accounts with and how to access them, your loved ones may not. If you don’t provide this information, it can add a lot of unnecessary administrative work to your loved ones’ plates and cause delays in the distribution of your estate.
In addition, if you have strong feelings about your funeral or how you want people to honor your memory, clearly communicating your wishes is the best way to ensure they’re known and considered.
That being said, most letters of instruction are divided into two main sections: financial information and personal information.
The financial information you include in your letter of instruction should include clear step-by-step instructions. Keep your instructions organized, straightforward, and easy to understand so that they provide the most support to whoever needs to use them.
The financial section of your letter of instruction should include:
1. A Complete List of Your Assets
Your assets include everything of value that you own, such as:
- Real estate, including both residential and commercial property
- Savings and checking accounts
- Investment accounts
- Retirement accounts
- Art or other valuable collectibles
You also should detail where to find your assets and how to access them. For example, if you keep valuable items in a safe deposit box, provide information such as the location where the box is kept, the passcode or key, and who to contact at the bank for assistance.
If you include your bank accounts in this section, note account numbers, types, and financial institutions they’re with. Include statements when possible, because they typically include all this information as well.
2. A Complete List of Your Debts
As with your assets, you should include a complete list of your debts in your letter of instruction — for example, car loans, mortgages, and credit card balances.
Be sure to mention any recurring bills or debts related to your assets as well, such as a cleaning or landscaping service, rental property management, or personal utilities and your cellphone plan.
Make a list of each debt you owe, how much it’s for, and who it’s with. This will make it easier for your executor or loved ones to pay off any amounts owed before honoring any of the bequests detailed in your will.
3. Insurance Information
If you have a life insurance policy, include the details in your letter of instruction, such as the provider, the amount it’s for, and who the beneficiary is. For example, you can choose to name a person, business, or trust as the beneficiary of your life insurance policy.
You should also include information about any other insurance you have, such as for a car or home. This helps others to update or cancel your policies when distributing or selling your assets after you die.
4. Contact Information for Lawyers, Accountants, and Other Financial Professionals
Your letter of instruction is an ideal place to list any important financial contacts you have, including:
- Financial managers
- Financial advisors
- Lawyers and estate planning attorneys
- Insurance agents
Make sure to list their names, phone numbers, positions, place of work, and what they handled or managed for you. If your executor or loved ones encounter a problem or have a question, this list will point them to who to contact for guidance.
5. Where to Find Important Documents
When settling an estate, your executor may need to access important documents to prove ownership, confirm a relationship, or provide financial records to a court. Make a list of all your important documents and where to find them, such as:
- Property deeds
- Vehicle titles
- Social Security number
- Social Security statements
- Tax documents, including tax returns
- Marriage certificates
- Divorce certificates
- Birth certificates
- Citizenship papers
- Living will or advance health care directive
- Last will and testament
- Power of attorney
6. Beneficiaries, Pets, and Children
Although a letter of instruction is not legally binding, you can still use it to note your preferences about who your beneficiaries are and how any dependent children or pets are cared for when you die.
For example, you can use your letter of understanding to outline:
- Who you would like to receive specific possessions
- How much of your estate you would like to go towards the care of your children or dependents
- How much you would like to allocate towards the care of your pets
If you choose to include this information in your letter of instruction, you must also state in your will that you would like your assets distributed as per your letter of instruction. If you don’t include this in your will, your request will not be legally binding.
The personal information you include in a letter of instruction can be made up of just about anything. It’s a way for you to list your preferences or make personal requests regarding the end of your life that aren’t legally binding. For example, you can use your letter of instruction to detail your wishes for:
1. Your Burial and Funeral
If you have preferences about your burial or funeral, such as who writes your epitaph, where you would like to be laid to rest, or how much you would like to spend on your wake, include them in your letter of instruction.
You can also state your preferences about your obituary, flowers, music, burial outfit, and what food is served at your reception if you’d like. While there’s no guarantee that all of your requests will be met, making your wishes known will help your loved ones to understand what you wanted and execute your preferences to the best of their abilities.
If you’ve already paid for a service or package at a funeral home, make sure you include as much information as possible for your loved ones, including the name and address of the funeral home, your receipt, and which cemetery your burial plot is located in.
2. Memorial Donations
Often, when someone dies, friends and family members like to pay their respects by sending flowers or making memorial donations. Requesting donations in lieu of bouquets or naming your preferred charity ensures you’re remembered in a way that reflects what was important to you.
For example, you can request donations be made to a local animal rescue or have trees planted in your name.
3. Your Digital Assets
Assets aren’t just tangible items like a vehicle or family heirloom. Music libraries, social media accounts, photo archives, and personal websites are all digital assets that you may want to address in your letter of instruction.
Specify information such as:
- What you would like done with music, images, or other media you own
- Logins and passwords
- Whether you want your social media accounts turned into legacy accounts (if possible)
- Who should be given access to your social media accounts or website data (especially if they contain private or sensitive photos, videos, or information)
When Should I Update a Letter of Instruction?
As with any estate planning documents, you should update your letter of instruction after you experience any major life events or significant changes to your assets or your debts. For example, you might want to update your letter of instruction if you get divorced or if you pay off your mortgage.
It’s useful to review your letter of instruction once per year to ensure it still reflects your wishes and preferences, as well as accurate financial information.
When making updates, write them in plain English and keep your instructions straightforward and clear.
After updating your letter of instruction, reprint, sign, and date it. You can provide copies to your executor, estate planning attorney, or loved ones, or you can keep it with your other estate planning documents. Just make sure that your executor, attorney, or a trusted friend or loved one knows where to find it.
While a letter of instruction isn’t legally binding like a will, it is an important part of creating a comprehensive estate plan. Because it can be used to specify your personal requests and preferences, it’s a helpful way to guide and support your loved ones by taking the burden of decision-making off their shoulders.
When creating your letter of instruction, keep it clear, detailed, and up-to-date so that it provides the most benefit to you and your loved ones when you die.