This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
One of the most successful and celebrated stock pickers of all time, Berkshire Hathaway (BRK.A +1.28%)(BRK.B +1.27%) founder and CEO Warren Buffett, is always chock-full of advice about investing in equities.
What draws less notice is the famous financier's remarks about other financial matters. This is a shame, because there is much wisdom to be gleaned in these pronouncements too. Recently, Buffett suggested one crucial move everyone should make with estate planning, and his guidance is well worth heeding.
The sharing principle
In a statement that was entirely in line with the folksy advice often disseminated by Buffett, he wrote: "When your children are mature, have them read your will before you sign it." [emphasis in original]
That doesn't apply only to multi-billionaires such as himself. Buffett said this principle should be followed by "all parents, whether they are of modest or staggering wealth."
The Berkshire leader followed this up with some concrete advice, and the rationalization for this:
Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If any have questions or suggestions, listen carefully and adopt those found sensible. You don't want your children asking "Why?" in respect to testamentary decisions when you are no longer able to respond.
Buffett added that he and Charlie Munger, his late business partner and a man he credits with much of his own success, witnessed many instances of family discord over wills. He attributed much of this to the lack of sharing with beneficiaries.
"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," he wrote. There is no better way to destroy relationships within a family, particularly a family of means that should by all rights end up being well off.
Buffett knows whereof he speaks. He has fathered three children, all of whom are becoming advanced in age in their own right (Susan is 71, Howard just celebrated his 70th birthday, and Peter is 66) and have offspring of their own. Warren said that over the many years that he has had a will in force, he has fielded questions and heard commentary from all three. Frequently, he said, he adopted the suggestions.
Fulfilling the Pledge
These remarks appeared in a press release published by Berkshire, perhaps not coincidentally one month before Christmas. The subject of the press release was the CEO's latest move in giving away the vast bulk of his wealth upon his demise. In 2010, he founded The Giving Pledge with Bill Gates.. This is a non-profit campaign to inspire wealthy individuals to contribute at least 50% of their wealth to philanthropy.
Leading by example, Buffett has promised to give away over 99% of his wealth to such causes. The latest component of this, as detailed in the press release, is his conversion of 1,600 Berkshire A shares into 2.4 million B shares. The latter was to be dispensed to four Buffett family foundations dedicated to various charitable activities.
Since he's dispensing these assets for his offspring to manage, we can be sure there were discussions about how they would handle the immense responsibility conveyed. If Buffett diligently followed his own advice, it's likely that this transfer will be done smoothly and peacefully, without the destructive infighting that has ripped apart many families throughout history.
