On Saturday, May 6, 2023, Berkshire Hathaway held its annual shareholders meeting. Warren Buffett, Chairman and CEO, presided over it. A shareholder asked him for advice about estate planning:
“I’d like to get your thoughts on a wide-spread problem in the world of estate planning, and that’s the failure of most parents to prepare the next generation for the inheritance coming their way. In particular, if the estate includes a family business, then most parents are failing to do any sort of succession planning of the day if (not when) the founder is no longer there to run it.”
This was Warren Buffet’s simple response:
“I do not sign a Will until my three children have read it, understand it, and have made suggestions.”
Keep reading to get the context behind Warren Buffett’s key estate planning tip and other lessons we can learn.
What Would Warren Buffett Do?
What would Warren Buffet do (WWBD)? If you enter this search term in Google, you will find millions of articles that muse about how Warren Buffet made his billions, what his top investment advice would be, what books he recommends, or how he would weather current market conditions.
Why is the populace so keen on knowing what Warren Buffet would do given any particular situation, especially relating to money? That’s because he is renowned as the most successful investor in history. Not only is one of the world's richest men with a net worth of $114 billion (2023), he appeals to the masses because his wealth is self-made and his lifestyle is relatable. (He wears old sneakers, lives in Omaha, and eats McDonald’s for breakfast every day.) Thus, everyone wants to know what this normal, relatable and yet mind blowingly wealthy individual would do and get his advice on all things money, business, and investing.
Naturally, this also means that the public has an almost obsessive-like curiosity about how Warren Buffett plans to pass down his wealth when he passes away.
This brings us to his latest advice that he gave at the 2023 Berkshire Hathaway Annual Shareholders Meeting that was held this past weekend.
“I Don’t Sign a Will Until My Children Have Read It”
At the meeting, an attendee pointed a question at Warren, asking for advice about estate planning. Or rather, he made a statement regarding the state of estate planning and the concern that parents are not preparing children for their future inheritance.
This speaker is likely referring to the Great Wealth Transfer, a phenomenon where one of the largest and most wealthy generations in American history is starting to pass away and leave their estates to their children. While any millennial or Gen X-er likely wouldn’t say “no” to inheriting a large sum of money through a loved one’s estate, that doesn’t take away from the risk of grave pitfalls. While there could be many, the two pitfalls of wealth transfers that stand out most are the erosion of multigenerational wealth and family in-fighting.
The erosion of multigenerational wealth is a top concern. You’ve likely heard the idiom, “the rich only get richer,” but it isn’t necessarily true all the time. According to Nasdaq, 70 percent of families lose their wealth by the second generation, and 90 percent by the third. This loss of wealth is often due to poor planning, including the lack of a solid Estate Plan as well as Succession Plan for family businesses. (Trust & Will shared a comparison of the Rockerfeller and Vanderbilt families, both important families in U.S. history. One family serves as a great example of multigenerational wealth planning while the other serves as a cautionary tale. Read about it here.)
Another important concern is family in-fighting. We’ll let you fill in the blanks as to why the distribution of an estate can lead to friction and conflict amongst family members. Here at Trust & Will, we believe that the best policy regarding estate planning is transparency, even if that might mean having awkward or uncomfortable conversations about death and money with your loved ones. By sharing your estate planning intentions, you can make sure that your loved ones understand your wishes and have the opportunity to ask questions and address issues before you pass away. That way, you minimize the risk of conflict amongst family members because there’s no surprises.
To this question, Warren Buffett opened with the simple (but loaded) answer of “I don’t sign a Will until my children have read it.”
Warren Buffett’s Thoughts on Estate Planning
When Warren Buffett answers a question, people listen. Here is a transcript of Buffett’s response to the posed question, followed by an analysis:
“Probably because of my age and to some extent things like the Giving Pledge, I’ve observed many families — particularly wealthy families — and their problems. In my family, I do not sign a Will until my three children have read it, understand it, and made suggestions.
Now, my children are in their 60s. It would not have been a great success if I had done this in their 20s. It depends on the family, how the kids feel about each other, and the kind of business you have. There's a thousand variables, but I do think that if the children are grown, and the Will is read to them and it’s the first they’ve heard about what the deceased thought about things, the parents have made a terrible mistake. I’ve run into all kinds of situations — some people don’t tell their children anything, some of them try to get them to bend to their Will; there’s a million mistakes that can be made — that’s the one you can’t correct.
I don’t know if you have billions of dollars [that you would] want to leave it all to your children, but your children are human beings, and you want them to get along. The estate isn’t the only place to mess things up, but it is an easy one. I’ve seen many cases where people did not know what was in the Will and within 15 minutes each one had a lawyer and they haven’t gotten along since.
It’s important to handle it right. And it’s important if you want your kids to have certain values, then it’s important that you live those values. They’re learning from you from the day that they’re born what you’re really like. Don’t think that a cleverly-drawn Will will substitute for your own behavior in teaching your kids the values that you hope they will have. The Will should be in conjunction with these values. It should express that as you grow older, and they grow older, that they learn to pass along their values in connection with the size of the estate. If it’s family farms it’s one thing, if it’s a bunch of marketable securities it’s something else.
In one instance a particularly rich fellow said that once a year he’d get his kids together for a family dinner and would get them to sign their tax returns and the blank.”
4 Valuable Estate Planning Lessons from Warren Buffett
So what are some lessons that can be gleaned from Warren Buffett’s response regarding estate planning? They include transparency, getting everyone on board with your vision, modeling the way, and touching base frequently.
1. Having Transparency
The first point Buffett emphasizes is having transparency with your loved ones, namely your children, about your Estate Plan. He clarifies that it might not be appropriate to share your Estate Plan with them when they’re too young to comprehend or haven’t yet developed the skills needed to manage wealth, but once they’re old enough, it’s time to have them read your Will.
2. Getting Everyone On Board
According to Buffett, the Estate Plan is one of the easiest ways to mess up your children’s relationships with one another. He emphasizes the importance of getting everyone on board. Not only does he have his three adult children read his Will, he will only sign it until after his children have made their suggestions. This insinuates that the children have a running opportunity to voice any concerns and work out any issues they might have with the Estate Plan before agreeing to it. It’s a grave mistake if children read the Will for the first time after their parents passed away.
3. Modeling the Way
While Buffett didn’t expand on the topic much, he touches on living your own values. In other words, he believes that parents should model the way for their children, and that an Estate Plan should reflect those family values.
In the past, Warren Buffett was quoted saying that “the perfect inheritance is enough money so that children feel they can do anything, but not so much that they could do nothing.” If you argue that this is one of Warren’s values, then let’s take a look at how he models that value through his Estate Plan. It checks out.
In 2020, Buffett wrote a letter to his shareholders, part of which addressed the succession of his wealth. His interest in Berkshire Hathaway makes up 99 percent of his personal wealth. He directs his Executors and Trustees not to sell any of his shares. His Will instructed his Trustees to transfer these shares to various foundations over approximately 15 years. In other words, 99 percent of his wealth will be gifted to charity instead of his children. (If you feel sorry for his children, keep in mind that this still leaves over $1 billion for his loved ones, a number that keeps increasing significantly with each year.)
4. Touching Base Frequently
Last but not least, if you read between the lines, Warren Buffett is suggesting that families touch base frequently regarding the estate. He brings up an example of an acquaintance who gets his children together once a year for the purpose of signing tax documents and his Estate Plan.
Trust & Will couldn’t agree more, and we frequently advise that estate planning should be a continued exercise and practice, not a one-and-done deal. It should be approached as a living, dynamic document that isn’t set in stone. This is because our estate plans should grow with us and should not be static. Whether we have more children, or grandchildren, get married, get divorced, buy a house, lose a business — these are all life events that can happen over the course of our lifetime and can drastically change our outlook of the future. If you have a policy of sharing your Will with your loved ones and getting them on board, then this requires touching base frequently to ensure everyone is privy to and continues to be on board as changes are made.
Be Like Warren Buffett: Start Your Estate Plan Today
Warren Buffett owns billions of dollars’ worth of assets and property. However, using the argument of “oh well, he’s rich and I’m not” and therefore dragging your feet on estate planning is not sound. If that is your argument, then in theory, no one would be interested in what Warren Buffett does or says. “Well he’s rich so his advice doesn’t apply to me.” Clearly, this is not true. Warren Buffett is sought out time and again for his advice and his actions. That’s because he models the way. There is potential and promise there for everyone. If he can do it, so can you. If you are at all interested in building, protecting, and preserving generational wealth for you and your family, then clearly estate planning is an important component.
If you’re interested in creating your Estate Plan, know that doesn’t have to be hard or expensive. This is where Trust & Will has your back! Our online platform makes it easy for anyone to create their Will and/or Trust with a few clicks of their computer mouse. Even better, it’s affordable! The famously frugal Warren Buffett would approve. Find out how to get started today.
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