Letters of Instruction are documents prepared to provide the Trustee of a Trust directions on how to administer assets to best suit the intentions of the person who has created those documents. For a discussion of Trusts, please see my Blog Article “What is a Revocable Trust”. Not every Trust will need a Letter of Intent, but they can be invaluable when a Trustee is administering funds for a minor child or a disabled individual.
Trust documents can be written very specifically to include a lot of detail about how funds are supposed to be used for the beneficiaries, however, if they are going to be administered over an extended period of time it is extremely important that they are broad and flexible. Having the documents be broad and flexible allows the Trustee to adjust to the changing circumstances of the beneficiary over that period of time.
For example, a Trustee who is administering funds for the benefit of a five (5) year old child, until that child attains the age of twenty-five (25), will be administering the Trust during a time period in which the child grows to an adult. It is unknown at the time that the Trust is created if the child will have uninsured medical expenses, will need funds for their support, or if they will even attend college. If the Trust document is drafted to state that the funds are primarily to be used for college expenses, the Trustee may have to limit the funds that they use for those uninsured medical expenses, which may impact the health of the child. This is certainly not what the Creator would have intended, but it is the consequence of drafting the document to specify the Creator’s intentions. Instead, if the Creator writes a Letter of Instruction, the Creator can specify that they would like an emphasis put on promoting education, and even describe the types of other expenditures that the Creator would approve of: like a down payment on a home; travel; starting a business; driver’s education; or even summer camps and swimming lessons. A Letter of Instruction allows the Creator all of the flexibility to describe what they want, without limiting the flexibility of the document.
Another example of the value of this document is using a Letter of Intent for disabled beneficiaries. The Creator may have a Trust document that the Trustee to use trust funds to enhance the disabled beneficiary’s life, but it may have limitations to ensure that the government benefits that the disabled beneficiary is currently receiving are not lost because of these funds. This is called a Third-Party Special Needs Trust. The Creator, who may have been the primary caregiver of the disabled beneficiary, is in the best position to know how they would like the Trustee to use the funds, and they may want to create circumstances that allow the Trustee to violate the terms of the trust to better promote the well-being of the disabled beneficiary. For example, the Creator may want the disabled beneficiary to be able to live in the home where the disabled beneficiary has been residing for their entire lifetime, with all expenses of the home to be paid out of the Trust, and possibly for an in-home caregiver to be provided for. The Trust language may not allow this for purposes of the disabled beneficiary’s government benefits, however, the Creator may prefer that this circumstance override the language in the Trust to some extent. The Letter of Instructions can be used in that case to describe how the Creator wants the disabled beneficiary to be cared for, but does not undermine the Trust, just in case the disabled beneficiary is already living in a group environment or the loss of the benefits that they are receiving would be catastrophic.
Letters of Instruction are not a part of the Trust document, and as such they are not as legally binding as the Trust itself, however, when a beneficiary or interested party challenges the Trustee’s administration of the Trust, Letters of Instruction can be extremely helpful to show that the Trustee is following the Intent of the Creator of the Trust. Courts may consider the Creator’s intent when evaluating the actions of the Trustee.
For more information, or to schedule an appointment to discuss your situation and your options, contact us.