Warren Buffett is known for his investing advice. However, the billionaire finance expert has knowledge to share on more than just which stocks to buy. In a letter Buffett wrote, he recently provided some very helpful estate planning advice.
The letter was prepared to explain to Berkshire Hathaway Inc. shareholders why he had made the decision to convert some Class A shares of stock into Class B shares. The purpose was to distribute the shares so more money could but put into family foundations managed by his children.
As he was explaining his reasoning for giving the funds to his kids to donate, he shared some helpful wisdom that can be useful to anyone who is making an estate plan.
1. Have your children read your will before you sign it
Buffett’s first tip related to his will. Many people have wills, as they are a simple document that can address a lot of key issues that are raised by your death. They are often considered the foundational estate planning document, or the most basic document you can make.
Buffett believes that when you make your will, you should share it with your kids. “I have one further suggestion for all parents, whether they are of modest or staggering wealth,” Buffett said. “When your children are mature, have them read your will before you sign it.”
It may seem odd to have your kids read this document and get insight into your finances and their inheritance before your death. However, doing so provides an opportunity that your kids won’t have after you are gone.
If your children read your will during your lifetime, they have a chance to process it with you. They are less likely to be upset about what is in it, or to try to contest it after your death, if you have worked with them to understand your motivations in creating it.
2. Make sure your children understand the logic behind your choices
Buffett also suggested that you are open with your children about why you made the decisions that you did about your inheritance. He said in the letter, “be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death … You don’t want your children asking “Why?” in respect to testamentary decisions when you are no longer able to respond.”
Buffett explained the reasoning behind this advice by explaining in the letter that big problems could happen if your children hadn’t been informed. He said that he had seen “many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry.”
He also explained that “jealousies, along with actual or imagined slights during childhood, became magnified, particularly when sons were favored over daughters, either in monetary ways or by positions of importance.”
Obviously, this is an outcome that no one wants, and Buffett believes it can be avoided if you simply fill your children in on your plans and give them a chance to ask questions. If they are upset or confused about something, you can explain the reasoning behind your choice and hopefully alleviate their worries.
Buffett said this has worked well for those he has known in the past. “Charlie and I also witnessed a few cases where a wealthy parent’s will that was fully discussed before death helped the family become closer. What could be more satisfying?”
3. Ensure your children understand their responsibility
One benefit Buffett identified of allowing your children to read the will in advance is that they can better understand their responsibilities. This is crucial too, as you probably don’t want to put your kids in a position that is difficult for them to manage.
If you expect your kids to be the executor of your will, for example, or if you want them to manage a family foundation or to assume the care of your pets, you should discuss this with them in advance.
If they aren’t comfortable with the things you are asking them to do, it is better to find that out sooner rather than later when you can still make a change.
4. Incorporate their suggestions when feasible
When you share details about your estate plan with your kids, Buffett also recommends making it a two-way conversation.
“If any have questions or suggestions, listen carefully and adopt those found sensible,” he said. He explained that he had implemented this policy in his own life. “Over the years, I have had questions or commentary from all three of my children and have often adopted their suggestions. There is nothing wrong with my having to defend my thoughts. My dad did the same with me. ”
Your children may have preferences you don’t know about or ideas you didn’t come up with. If you can incorporate their suggestions while still remaining true to your own values, everyone can end up happier.
5. Review and update your will regularly
Finally, Buffett advised keeping your estate plan updated. “I change my will every couple of years – often only in very minor ways – and keep things simple,” he said.
This is an important reminder that you aren’t necessarily done when you make your estate plan as you need to keep it updated as life changes.
Getting help with your estate plan
This is helpful advice for anyone making an estate plan. The plans you put in place will shape your legacy and affect your children’s future in important ways. You should be sure to think carefully about the tools you are using and about the conversations you have with your children about the future.
The Law Offices of James Miller can help. Give us a call today at (508) 799-8885 or contact us online to speak with a Worcester, MA estate planning lawyer who can assist you in putting plans in place that provide for your loved ones and allow you to leave the legacy you deserve.