When you make out a will or bring one up to date, it’s also the practical time to write a "letter of final instructions" — an informal document that isn’t legally binding and usually is addressed to your surviving spouse, one of your adult children, your lawyer or your executor.
Why is it worthwhile to go through the chore? So that your heirs are made aware of your assets, as well as how you want your personal affairs handled. These are important details that can change quickly and are usually impractical to put into a will.
Here are some reminders on the kinds of information to include:
Let your heirs know how much they can expect.
List all benefits due them from your employer or your business or professional practice. These fringes include life and accident insurance and retirement plans, as well as benefits from Social Security or other sources.
Disclose, too, where you keep copies of checks, credit card slips, and other documents that supply the information you rely on at tax time to justify the amounts shown as income, deductions, exemptions, and other 1040 figures for the past three years or so. If the IRS should question those figures and the necessary substantiating records are unavailable, then your estate may be drastically diminished by assessments for additional taxes, interest charges, and, perhaps, penalties. Ditto for any applicable state taxes.
Avoiding a Nightmare
Like other lawyers, I’m often called in to help heirs search for property stashed in odd places. My most memorable case involved a much-married widow with children from each of her marriages. After her death, all the half-brothers and half-sisters were scavenging for documents like a will, insurance policies, stock certificates, and bank statements.
It wasn’t until years afterwards that the squabbling siblings stumbled upon cold hard cash concealed in their mother's armoire. Worse still, missing jewelry had them eyeing each other distrustfully until they finally discovered the gems hiding behind a loose board in the closet of a summer home that, fortunately, had remained in the family.
To speed things up and lessen the children’s expenses, I advised them, as I do all heirs, of several tested techniques for reconstructing assets that they could employ without assistance from me.
For starters, all they had to do was monitor mom's mail during the filing season for 1099 forms from banks, brokerage outfits and other financial institutions. These forms would show income from such sources as interest and dividends. As anticipated, those 1099s did eventually enable them to track down much of her property.
The children might have been able to use her tax returns to determine the ownership of other assets, such as real estate. This approach proved to be unavailable, however, when they found that she had not filed 1040s for years.
What if she’d filed, but her retained copies were nowhere to be found? The fastest way for the children to get them is from her return preparer, assuming she had used one. The law, in most cases, requires preparers to keep copies for at least three years after the filing deadline.
What, there’s no preparer? The children can obtain copies from the IRS by submitting Form 4506 (Request for Copy of Tax Form), available at irs.gov. Give a leeway of at least 60 days from when the IRS receives the form to sending out copies. Note that the IRS charges a fee for each return requested.
Meanwhile, the needlessly protracted search for assets continued. As a consequence, so did my fee — although based on an hourly rate I deemed to be quite moderate — which continued to swell, a circumstance that discomforted the children and comforted my creditors. Heed this cautionary tale.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting).
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes...