The estate planning process can be an overwhelming experience for clients. After all, we are discussing a pretty unpleasant topic (your ultimate demise), and what will happen when you’re gone. It is an inevitable part of life as we know. In some situations, there is a gap between how I, as an estate planning attorney, can draft your estate plan to meet technical and legal nuances, while you, as the Grantor, can actually convey your wishes to the people administering your estate after you’re gone. This is when we have to move beyond the legal structure and into more practical and emotional areas of estate planning.
Letters of Intent
A solution to bridge this gap is actually pretty simple, yet probably underutilized. In appropriate cases, I recommend my clients draft Letters of Intent to go along with the estate planning documents I have drafted for them. In fact, taking this extra step and writing these Letters of Intent for both your Successor Trustee and Beneficiaries, can provide you with peace of mind that your specific wishes are clearly known.
A Letter to Your Successor Trustee
A Letter of Intent to your Successor Trustee (the person who manages your estate after you have passed) can spell out your intentions, including certain goals you want your Successor Trustee to consider, or specific actions you want him or her to take, but which might not be appropriate to include in the meat-and-potatoes of the main Trust document.
For example, many estate planning clients tell me they don’t want their Beneficiaries (usually their children) to get their inheritance unless or until they obtain a 4-year degree from a university. I understand the point- they want their kids to be good, productive citizens, and not “trust fund babies” – but someone can certainly be a good, productive citizen without a 4-year degree from a university.
- Firefighters don’t need degrees.
- Steve Jobs dropped out of college. So did Bill Gates and Michael Dell.
- Some people obtain their 4-year degrees at a Community College, which is not technically a “university”.
If the Trust says your Successor Trustee may not make a distribution until a 4-year degree is obtained from a university, that is exactly what has to happen. You can see why specifying this criterion in the Trust document itself can be problematic. A better solution is to let your Successor Trustee know your ultimate intentions (good, productive citizen) via the Letter of Intent, and then let him or her decide if your Beneficiary meets that standard when the time comes.
In the letter to your Successor Trustee, you can also address your fears or concerns (i.e., a child’s spouse getting their hands on the money you’re leaving to your child or grandchildren), or examples of what you consider an appropriate use of inheritance (i.e., “I would like my children to study abroad or travel frequently with the money I am leaving them.”). Ultimately, the way it works is this: I draft your Trust to leave some discretionary power to your Successor Trustee, and you augment the Trust with a Letter of Intent that provides guidance in his or her exercise of that discretionary power.
Word of Warning: Letters of Intent are not legally binding. This means that your Successor Trustee is free to disregard the letter, and there are no legal repercussions for doing so. This, however, is what makes Letters of Intent such a wonderful tool! Our goal is to provide guidance to the Trustee without tying his or her hands. None of us can predict the future; what you want now may not be advisable or even possible in the future, but guidance provide in a Letter of Intent allows you to make your wishes and preferences know, while at the same time preserving flexibility. A well-written Letter of Intent provides guidance as to what matters to you—so it is important to be clear about what you want and why, what your ultimate goals are for your Beneficiaries, what you are expecting of your Successor Trustee, and provide examples where possible.
A Letter to Your Beneficiaries
In addition to a Letter of Intent to your Successor Trustee, I recommend also drafting letters to each one of your Beneficiaries (the people who will be inheriting from you). These letters are meant to be personal, and should not be shared with the named-beneficiary until after your death. They can be exceptionally useful because it’s you explaining your goals and wishes to them, in your own words, and hopefully with some personal touches included. (In fact, these Letters of Intent often become cherished family mementos; more like a note from mom or dad rather than merely one of the tools in in your estate planning tool-kit).
Moreover, tough language of the Trust can be softened by these Letters, particularly to explain to adult-children why you left their inheritance to be managed by someone else (your Successor Trustee) rather than leaving it to them to handle right away. You can use this Letter of Intent to explain to them the reasons you made the choices you did (i.e., “It’s not that I don’t love and trust you; it’s that I think you are too young to make financial decisions without guidance, and I’d rather you work with a Successor Trustee until you’re 30 years old, and a little more established.”). Another related side-function (and ultimate benefit for your Successor Trustee) is that these letters tend to make the Trustee less of “the bad-cop” when making distributions in accordance with the Trust language (or withholding distributions from adult-beneficiaries), as the letter you have written to the Beneficiary explains your reasons for putting your Successor Trustee in charge, and the criteria you want met before a distribution is made.
Overall, both types of Letters of Intent can be useful, and especially powerful when used together in your estate plan. They allow the Grantor to feel that his or her voice will be heard, and their long-term goals are accurately reflected, while keeping with the technicalities of the law. Once you’ve spent the time creating and executing your estate plan, take it a step farther and draft these Letters of Intent. Your Beneficiaries and Successor Trustees will be grateful you did.