Estate Planning Documents

By: Jonathan D. Pond | Source: AARP.org | July 7, 2009

Do I need a letter of instructions, and how much does it cost to have one prepared? –Susan, Vermont

You will be doing your loved ones a big favor by first preparing a letter of instructions, then keeping it up to date, and finally, by letting them know where it’s located. It doesn’t cost anything except some time to prepare one, since you don’t have to involve a lawyer.

A “letter of instructions” is an informal document that gives your survivors information concerning important financial and personal matters that must be attended to after your demise. Although it doesn’t carry the legal weight of a will and is in no way a substitute for a will, a letter of instructions clarifies any special requests to be carried out upon death. It also provides essential financial information, thus relieving the family of needless worry and speculation.

Here are some things that should be put into your letter of instructions:

• The location of important papers, including the will, birth and marriage certificates, and military records
• A summary of your investment accounts and insurance policies
• The location of documents relating to your personal residence, including an inventory of household contents and warranties and receipts for expensive items; you may also want to include a list of mementos naming next to each item the person you would like to receive it
• Details of the whereabouts of your safe-deposit box, its key, and a list of its contents
• The locations of previous income-tax and gift-tax returns
• An expression of your wishes about your funeral and burial preferences, including any advance arrangements that have been made
• The names and addresses of people and institutions that should be notified

Obviously, your survivors will benefit greatly if you prepare a letter of instructions. But you will also benefit, insofar as a well prepared letter is a great way to organize your personal records—something all of us should do. Keep your letter updated. After you prepare your letter of instructions, keep in mind that things change in your life, things which inevitably require you to change the letter of instructions later on.

While an out-of-date letter is not as perilous as an out-of-date will, you should still strive to keep it up to date by reviewing it at least annually or by making any obvious changes when they arise.

Tell family members or acquaintances where your letter of instructions is located. Finally, put a copy of your letter of instructions in any easy-to-find location, and make sure your loved ones know where they can find it. I’m aware of several stories about families that couldn’t locate a well-prepared letter of instructions, simply because the departed neglected to tell them where it was.

My siblings and I are having a hard time convincing our dad that he also should have a durable power of attorney as well as a regular power of attorney. Can you explain the differences between the two, and which is preferred? –Jacqui, Washington 

As with most estate-planning matters, the terminology is confusing. Here’s a rundown on various types of powers of attorney.

A power of attorney is a document that allows you to appoint a person or organization to handle your affairs while you're unavailable or unable to do so. The person or organization you appoint is referred to as an "attorney-in-fact" or "agent." A power of attorney may be very specific, authorizing a person only to sell a car for you, for example. Or it can be very broad, allowing the agent to do almost anything on your behalf.

A general power of attorney authorizes your agent to act on your behalf in a variety of different situations.

A special power of attorney authorizes your agent to act on your behalf in specific situations only.

A health-care power of attorney allows you to appoint someone to make health-care decisions for you.

With a durable power of attorney, you can make all the general, special, and health-care powers of attorney described above "durable" by adding certain text to the power-of-attorney document. This means that the document will remain in effect or will take effect if you become incapacitated.

A durable power of attorney is usually included as part of an estate plan to cover the possibility that the family member might need someone to handle his or her financial affairs if he or she becomes unable to do so. In your father’s situation, he almost certainly needs a durable power of attorney. Explain to him that without language that makes it durable, a power of attorney will not carry out his wishes in the event he becomes temporarily or permanently incapacitated.

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