This article was originally published to subscribers of The Wall Street Journal, found HERE.
I once had a client who half-jokingly told me he wanted to be buried with his iPhone in his hand so he could call me—the executor of his estate—from the afterlife to make his voice heard.
Writing a letter to your executor is, in many ways, the next best thing. Many people draft personal notes to their loved ones and their successors, but few take the time to pen a thoughtful letter to their executor to help guide their decisions in the future.
Your executor can help you achieve your goals and ensure that future generations will benefit from your hard work as well as your generosity. By definition, an executor acts as a fiduciary, which means that he or she has the highest duty of care in administering your estate, always looking out for your best interests while balancing the needs of your beneficiaries with financial realities.
So, writing a detailed, informative letter can ensure that you make your voice heard and your wishes known. There may be things that you want to tell the executor, but never get around to doing so. Having the letter ensures that those things are heard, especially in the case of an unexpected death. The letter, which you should sign and date, also can help to clear up potential disputes by minimizing ambiguity surrounding your intentions, priorities and goals.
Here are a few important considerations to keep in mind when drafting a letter:
Explain your philosophy about investing. Build context about how you created your wealth, why you think it’s important to save money and what you value. That way, your executor will understand what’s important to you, even after you’re gone, and help to achieve your long-term goals. For example, if you believe it’s important to take a long-term approach to investing and to let your assets grow and generate income over time – rather than selling them – make that clear in your letter.
Introduce the key players in the family. If your executor knows all the personalities–and personality conflicts–in the family, he or she can anticipate issues that might arise. Do you have one child who tends to dominate discussions about money and always seems to need more cash than your other children? Are there addiction issues in the family that could cause a problem down the road? Detail the types of concerns that might potentially arise in order to minimize the erosion of your investment portfolio.
Explain what’s important to you. This is particularly important if you don’t want to encourage your successors’ dependence upon income from your trust. Share your values to discourage dependency and to encourage earned success. Make it clear that you want to keep principal encroachments to a minimum and that you want to empower future generations to chart their own paths toward financial independence.
Empower your executor to say “no.” Give concrete examples of situations when you’d like your executor to consider declining principal encroachments that might jeopardize the overall value of your estate. Is seed money for your son’s new start-up an acceptable use of funds? Are you o.k. with providing a down payment on your daughter’s home? Specify which types of expenditures you approve and which ones you don’t in order to eliminate as many “grey areas” as possible.