Letters of intent: Guiding your family's legacy

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Author: Patrick Sablich, National Director, Family Wealth Services, Fifth Third Private Bank

A letter of intent, also commonly referred to as a letter of wishes or side letter, is a grantor’s opportunity to communicate their intentions to beneficiaries of their trust. While beneficiaries can include individuals as well as charitable entities, for purposes of this article we will use children interchangeably with beneficiary, as letters of intent are most commonly utilized in parent-child relationships.

John Warnick, founder of the Purposeful Planning Institute, refers to the intentions expressed in such a letter as "guidelights," intended to enrich the lives of beneficiaries drawing on a lifetime of wisdom gained. My own letter of intent starts with the following note to my children:

It is my deepest desire for you to find joy and fulfillment in your life. I have found that this pursuit requires one to be curious, courageous and compassionate in all that you do. My wish is for our financial resources to be a tool for you as you pursue your life of purpose and meaning.

James Hughes, author of "The Cycle of the Gift," talks about "giving with spirit" so that inheritance can serve as an enhancement in the life of the receiver, who is often inspired to give well in turn. Giving with spirit requires deep self- reflection, and the same is true of crafting a well-written letter of intent. Each letter is uniquely personal and there is no right or wrong way to do it. The following ideas or guidelights can serve as prompts in thinking about what you want to include in your own letter:

• Quotes or sayings: Consider those that exemplify your thoughts on life, family and money. For example: "Choose a job you love, and you’ll never work a day in your life."
• Stories: Capture important stories from your own parents and grandparents that were important in shaping your life. Children who know their family history have shown to be more resilient in their own lives.
• Traditions/memories: Reflect on experiences, trips, holidays, etc. The time together that strengthened the bond you share. Express your desire for any traditions you hope will continue and specify if you have left resources specifically to support them.
• Gratitude: Reflect on your appreciation for the hard work and success of the family members who came before you, or for your own financial success, and all who supported it.
• Pride: Recall the times when the letter recipients made you most proud—perhaps a challenge they overcame or a time they helped someone else in need. • Values: There are tools to help you prioritize and articulate the values you hold most dear. This entire letter is an expression of these values, but you may consider listing 3-5 here as well.
• Advice: Consider your lessons learned in business and investing. For example: "Take risks but learn from your mistakes."
• Philanthropic priorities: Encourage giving of time and talent in addition to financial resources. Perhaps share the organizations you hold most dear, and why. If the child will have a role in your charitable giving, consider expressing your related wishes.
• Thoughts on work: If relevant, articulate your desire that the letter recipient work and receive the resulting satisfaction or that they pursue their passion without financial concern, should that be in art, teaching, social work, etc.
• Habits: Something you found to be crucial to your success that you hope your children will adopt as a practice. For example, perhaps you credit prioritizing a healthy lifestyle to your energy and longevity.

There are many reasons and many ways to express your intentions:

1. Express your vision for your family’s legacy as the expert in your unique family circumstance.
2. Articulate why you believe passing assets in a trust was in the best interests of you and your beneficiary—whether it be for protection, tax efficiency or personal reasons.
3. Support the foundation of a healthy beneficiary-trustee relationship.
4. Provide guidance and comfort to the trustee in knowing that the goals and objectives for the trust are being met even when family circumstances have changed.
5. Clarify potential misunderstandings: For example, if your trust states its support for beneficiary education, your letter can include your definition of education, and whether it applies only to traditional post-secondary schooling or to more broad pursuits, such as yoga certification.
6. Increase family harmony: For example, explain your reasoning for leaving different amounts to different children.
7. Facilitate multi-generational wealth stewardship: The letter can be saved and used as a template for your children approaching future wealth transfer with their children, and so on.
8. Provide overall guidance to the trustee on the intent of the trust that may not be easily spelled out with legalese. This is not to bind the trustee, but acts as a rudder to steer the trust and trustee towards the grantor’s intention/direction.

"I personally saw the impact of this kind of letter, and it forever changed my life. Usually, people engineer trusts against only tax and legal codes. But in my experience, a letter of intent is much more effective at truly accomplishing a grantor’s wishes. It solves for the human equation and provides more benefit than any tax or legal code could ever offer." — Wesley Reardon, CTFA Senior Trust Advisor

Considerations

A letter of intent is a complement to estate documents but is not legally binding. The letter needs to be consistent with the terms of the accompanying trust and is not a tool for amending an existing trust. Given these considerations, it is recommended that you have your legal counsel review your letter. Ideally, this letter will be the capstone to a lifetime of intentional family conversations. However, if you are reading this, you still have time to begin. Contact your relationship manager for ideas on how to engage your family in conversations about wealth stewardship.

FAQs

1. Can you change a letter of intent? Yes. A periodic review, or review following major life changes, is a good idea. It should also be reviewed when making changes to your estate plans.
2. Do married partners write the letter together or each write their own? Either way works. If you decide to write it together, consider reflecting on the prompts above individually and then discuss your answers together before you draft the letter.
3. Does a letter of intent accompany a will or a trust?A letter of intent is more typical in the case of a trust, but may also accompany a will. The legal considerations mentioned above would apply in either case.

For more information on how to write an effective letter of intent, contact your Fifth Third Private Bank advisor to start a conversation.