Letter of Intent

What Is a Letter of Intent and Why Is It Important?

The last will and testament stipulating a person’s preferences for estate distribution of assets and real property when they die, specifies instructions for end-of-life financial planning for healthcare and other purposes, as well as transfer to heirs and beneficiaries when they die. A letter of intent (“LOI”) is a contract document that distills terms and conditions for estate plan distributions to heirs and beneficiaries. An LOI can serve to record transfers of property titles and other important transactions, not otherwise present within an estate’s trust account documents. Other issues described within a LOI are related to the location and disposition of personal effects, funerary planning wishes, and other financial details such as outstanding debts not accounted for in living trust documentation. Planned giving specialists will want to know more about LOI impacts on nonprofit charitable giving plans coordinated with an estate or trust.

The ‘13’ LOI Itemization Priorities

  1. Life insurance policies
  2. Bank account information with bank names and account numbers.
  3. U.S. Savings Bonds account names, denominations, and serial numbers
  4. Portfolio of stocks or bonds
  5. Pension or retirement contribution fund accounts
  6. Affiliation membership (i.e., AARP, Elks Club, Lions Club, Masons, Moose Club) death benefits for named beneficiaries.
  7. Income tax returns
  8. Estate gifts
  9. Will modification records
  10. Outstanding personal debts, or recurring bills
  11. Exact location of the will and other key documents such as birth and death certifications, real estate deeds, and other official record
  12. Funeral instructions for burial/cremation
  13. Contact list friends, relatives, and others to be noticed at time of death

LOI Roadmap for Trust Directives

The formation of LOI is often part of a negotiated process, whereby parties forge the terms and conditions to a complex transaction. Attendant to the Will’s definitive agreement, LOI can be accompanied by ancillary documents advising designated parties of an estate plan of the protocol, procedures, and timing of trust transactions once the will is in effect. It is widely agreed that a LOI can serve as a valuable roadmap or initial draft of the last will and testament. Definitive agreement that all terms and conditions of a will mirror an owner’s drafted LOI indicates adherence to the express consent of the estate’s originator. An executor or trustee should approach an LOI as durable directive, with little to no modification in mind.

LOI Preparation

Preparation of a LOI requires the consent of an estate owner, executor, or trustee, as well as necessary third parties (i.e., attorney, court, financial institution, etc.). An LOI should also affirm mutual due diligence investigation of all parties has been performed or waived with approval of a said party. Other conditions to LOI terms may involve regulatory approvals (i.e., SEC approval of securities exchange), and any other conditions mutually assented to as part of the agreement.

Consideration and Price

All contracts require consideration in a bargained for exchange of a purchase price. Consideration is involved in the receipt or transfer of goods, assets, debtdeeds, equity, licenses, intellectual property, and titles. Appraisals of assets are similar with “buy” and “sell” of estate assets, in that the total estate value on record is altered as result.

Prohibited Actions

Record of pre-closing covenant prohibited actions connected to the negotiation and finalization of the definitive agreement, resulting in the closing of the underlying transaction. Prohibited actions generally involves bankruptcy initiation, changes in ownership, material adversity of financial conditions, sale of assets, alternate distribution plans, major capital transactions other than the one being negotiated, or any significant transaction inconsistent with the directives of the estate. A confidentiality agreement outlining non-public details about an estate plan’s record of transactions exchanged between the parties in connection with the LOI agreement is advised.