What the ‘Oracle of Omaha’ has to say about Estate Planning: Warren Buffet’s Advice Applies to All

As is his custom at the 2013 Berkshire Hathaway Annual Meeting, Warren Buffett took questions from the audience.  Normally, those questions revolve around Berkshire’s investments and the economy, but this year estate planning attorney Marvin Blum asked Mr. Buffett the following question:  “I’m an estate planning lawyer, and it’s interesting as we wrap up today to ponder that the baby boomer generation is about to pass along the greatest transfer of wealth in history. I can design plans that eliminate estate tax and pass down great amounts of wealth to the next generation, but many of my clients come to me and say they want a plan like Warren Buffett’s, leaving their kids enough so they can do anything, but not so much that they can do nothing.  Now they ask me, and I am asking you, ‘How much is that, and how do you keep from ruining your kids?’”  Mr. Buffett’s answer as quoted in the Fort Worth Business Press was interesting:I think that more of our kids are ruined by the behavior of their parents than by amount of the inheritance … [applause] … Your children are learning about the world through you and more through your actions than they are through your words. From the moment they’re born, you’re their natural teacher. And it is a very important and serious job, and I don’t actually think that the amount of money that a rich person leaves to their children is the determining factor at all. In terms of how children turn out, I think that the atmosphere, and what they see about them and how their parents behave are more important. I’ll say this. I’ve loosened up a little bit. Every time I rewrite my will, my kids are happy, because they know I am not reducing the amount. Anyway, and something else I find, which I think is an obvious thing; it is amazing how many people don’t do it. Your children are going to read the will someday, assuming you’re a wealthy person. It’s crazy for them to read it after you’re dead for the first time. You’re not in a position to answer questions unless the Ouija board really works or something of the sort. So, if they’re going to have questions about how to carry out your wishes or why you did this or that, why leave them endlessly wondering after you die? So, in my own case I always have my children, when I rewrite my will every five or six years, and I have them read it, and if they’re an executor under it, they should understand how to carry out their obligations that are embodied in the will, and also if they feel there is anything unfair about it, they should express themselves before I sign that will, and we should talk it over. So I do think it is very important in wealthy families once the kids are a certain age, I wouldn’t do this for a fourteen year old, by the time they’re in their mid-thirties or thereabouts, they should be participants in the will, and I do think that if you’re very wealthy, the idea of passing it on, creating a dynasty of sorts, as far as I am concerned, if you’re dealing with hundreds of millions or billions, the money has far more utility to society than to create a situation where your kids don’t have to do anything in life except call a trust officer once a year and tell him how much money they want."I loved this response and dissecting it gives you some important guidance:1.  Teach your children correct principles.  No legal document can substitute for this.2.  Let your children know what your plan is.  Even if they disagree with your decisions; if they know your reasoning and know you are competent and not being coerced they are less likely to fight over it after you are gone.3.  Regularly review and update your plan.  It needs to be current to be effective.4.  Don’t create an entitlement program for your heirs.  Seek to benefit the greater good and establish a pattern of work and self-reliance.Obviously, most of us will not be faced with dispersing and caring for the kind of assets that Warren Buffet will.  But what I loved about his response was that the advice he gave was applicable to all of us.  You can see from Mr. Buffet’s answer to this question that he has taken deliberate steps to ensure the well-being of his family – and it is not just about the amount of money he is leaving to them.  Something we can all learn from.