Letter of Final Instructions - Can Be As Important as Your Will

TAX ADVICE from Julian Block

(March 31, 2005) With so much attention focused on “living wills,” it's important not to forget another element of your will – the “letter of instructions." This can be 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 your heirs are made aware of what your assets are, 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. These fringes include life and accident insurance and retirement plans, as well as benefits from Social Security or other sources.

Indicate where you keep canceled checks and the like that, among other things, supply the information that you rely on at 1040 time to justify the amounts shown as income, deductions, and other return figures for the past three years or so. Should the IRS question those figures and the substantiating records are unavailable, your estate may be drastically diminished by assessments for additional taxes, interest charges, and, perhaps, penalties.

Avoiding a Nightmare

Unless the heirs have a letter of final instructions, they will have to reconstruct the assets without guidelines, resulting in a situation that can be nightmarish, trigger epic family battles that could have been easily averted and significantly increase fees for lawyers and others who bill by time.

Like other lawyers, I’ve often been called in to help heirs search for property stashed in odd places. My most memorable case was that of a much-married local widow with children from each of her marriages. After her death, the half brothers and half sisters found themselves scavenging for such documents as a will, insurance policies, and bank statements.

It wasn’t until years afterwards that the squabbling siblings stumbled upon cold cash concealed in their mother's armoire. Worse still, missing jewelry had them eyeing one another distrustfully until they finally discovered the gems 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 several 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 and other financial institutions. Those forms would show interest, dividends and other income sources. As anticipated, the 1099s eventually enabled them to track down much of her property.

The children might have been able to reconstruct other assets from her tax returns. Unfortunately, that method was unavailable, as they found that she had not filed 1040s for years.

What if she had filed, but her retained copies could not be found? Then the fastest way to obtain them is from her return preparer, assuming she used one. Usually, preparers must keep copies for at least three years after the filing deadline. Failing this, the children are ableto get copies from the IRS by submitting Form 4506 (Request for Copy of Tax Form). But figure on at least 60 days from the 4506’s receipt by the agency for the IRS to send copies. And the IRS charges for each return.

Meanwhile, the needlessly protracted search continued. As a consequence, so did my fee -- though based on an hourly rate that I deemed moderate – which continued to swell, a circumstance that discomforted the children and comforted my creditors.

Julian Block lives in Larchmont and is a syndicated columnist, attorney and former IRS investigator who the New York Times has called “a leading tax professional.”

His “Year Round Tax Savings” shows how to save big money on taxes – legally. To purchase a copy or for information about his adult ed courses on tax strategies, email: at julianblock@yahoo.com.

 

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