Considering Transferring Wealth to Your Family? Wise Counsel from Warren Buffett to Take Note of First
This article is exclusively meant for educational purposes and does not serve as legal counsel. For personalized counsel, please consult a legal expert.
Regarded as one of the most prosperous and honored stock pickers in history, Warren Buffett, the founder and CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is renowned for his insightful investment advice in equities.
However, his profound wisdom doesn't just stop at equities. He also shares his thoughts on various other financial matters, which, unfortunately, often go unnoticed. Recently, Buffett suggested a vital step that every individual should take while planning their estate, and his suggestion is highly recommendable.
The Sharing Concept
Buffett, in his characteristic down-to-earth fashion, suggested, "When your children have grown up and become mature, have them read your will before you sign it." [Emphasis added]
He emphasized that this rule should be adhered to not just by billionaires like him, but by "all parents, regardless of whether their wealth is modest or substantial."
Buffett further elaborated on this concept by providing practical advice and justifying his stance:
Ensure each child comprehensively understands the logic behind your decisions and the responsibilities they will inherently face upon your demise. If they raise any questions or suggestions, give them serious consideration and implement those that appear logical. You wouldn't want your children questioning the rationale behind your testamentary decisions once you are no longer able to respond.
Buffett stated that he and his late business partner, Charlie Munger, frequently observed familial disputes over wills. He attributed these disputes to the lack of sharing between beneficiaries.
"Childhood memories of potential slights and jealousies multiplied, particularly when sons were favored over daughters either in monetary terms or positions of importance," he wrote. There is no surer way to damage relationships within a family, especially a prosperous family that, in principle, should leave behind a comfortable inheritance."
Buffett, whose children are all well into their mature years (Susan is 71, Howard celebrated his 70th birthday, and Peter is 66), has had numerous discussions and received commentary from his offspring regarding his will. He often adopts their suggestions.
Fulfilling the Promise
Buffett made these remarks in a press release published by Berkshire Hathaway, coincidentally right before Christmas. The press release centered around his latest donation plan, in line with his pledge to give away the majority of his wealth upon his demise.
Established in 2010, The Giving Pledge is a non-profit campaign that encourages wealthy individuals to donate at least 50% of their wealth to philanthropy. Buffett has committed to donating over 99% of his wealth to such causes.
The latest part of this donation plan, as detailed in the press release, involves converting 1,600 Berkshire A shares into 2.4 million B shares. These shares were destined for four Buffett family foundations dedicated to charitable activities. Since these assets are being transferred to his children to manage, it's safe to assume that there were discussions about how they would manage such a substantial responsibility. If Buffett follows his own advice, this transfer should likely proceed smoothly and harmoniously, without the destructive infighting that has torn apart numerous families throughout history.
In the context of estate planning, Warren Buffett suggested that after children have grown up and become mature, they should be encouraged to read the will before it is signed, a recommendation applicable to all parents, regardless of their wealth status. This step aims to ensure each child fully understands the reasoning behind their parents' decisions and the responsibilities they will inherit.
Furthermore, Buffet has emphasized the importance of sharing in the process, as unaddressed potential slights and jealousies can damage relationships within a family, especially in prosperous families. By fostering open communication and considering children's suggestions, families can avoid disputes over wills and maintain harmony.
