Warren Buffett changes course with new plans for his estate

Regularly review your estate plan to ensure it aligns with your current wishes. If it doesn’t, change the plan.

That’s a cardinal rule of estate planning at any wealth level. It’s also a practice Warren Buffett, one of the world’s wealthiest individuals, heartily embraces—as recent news reports attest.

Buffett made headlines last year, when he announced his remaining wealth—totaling more than $140 billion—would transfer to a charitable trust that would be established when he dies. This trust would be administered by Buffett’s three adult children.

One reason for the news coverage: It’s a big change. It had long been expected that the native Nebraskan’s fortune would eventually be entrusted to the Gates Foundation, as he began pledging donations to it in 2006.

But then, his generosity regularly draws wide attention, as it did late last year, when the 94-year-old Chairman and CEO of Berkshire Hathaway donated $1.15 billion (2.4 million shares of company stock) to four existing family foundations.

While the size of Buffett’s fortune understandably makes his estate plans a subject of global interest, his views on estate planning are equally compelling.

Some, outlined below, may surprise—and inspire—you.

The future, anticipated

In our experience, parents—even extremely wealthy ones—tend to leave most, if not all, of their wealth to their children, grandchildren and other lineal descendants, with perhaps some wealth going to other family members and/or to charity.¹

Buffett always strongly disagreed with this strategy. In his view, “Hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing.”

Instead, he is entrusting his children with the responsibility—and privilege—of giving away his fortune to help “the people who haven’t been as lucky as we have been.” At the same time, he recognizes his sons and daughter, respectively, 66, 70 and 71 years of age, may not live long enough to distribute all of his wealth, and he has now taken two more noteworthy actions:

Named three successor trustees. These individuals, known to his children, are younger. It’s generally assumed these successor trustees will pursue the same or similar philanthropic goals as the three siblings (who each run a foundation with distinctly different objectives).

Taken steps to insulate his children from having to turn down “earnest requests” for distributions. Recognizing his offspring may be widely viewed as “targets of opportunity,” Buffett has stipulated all distribution decisions must be unanimously agreed to by all three siblings. This, he believes, will give each child the leeway to deny a request by saying, it’s not something that would ever receive another sibling’s consent.

In all other ways, Buffett is leaving it to his children to decide how the existing foundations and new trust will operate. 

Breaking new ground

One of Buffett’s wealth planning ideas that garnered particular attention when it was recently reported: his recommendation that, regardless of wealth level, children should be allowed to read their parents’ wills before the parents sign them.

His only caveat: The children must be mature enough to take part in an estate planning conversation.

In our experience, this is almost never done. However, Buffett offers several compelling reasons for adopting this practice:

• Parents should be able to explain to a child the decision making that underpins their testamentary plans. If they cannot, the underlying rationale may not be sound. As Buffett writes, “There is nothing wrong with me having to defend my thoughts.”
• Even if a parent’s thinking is sound, a child’s perspective may be worth consideration. Moreover, as long as the parent is alive and competent, a will can be modified. Buffett notes he has often adopted his children’s suggestions and, further, that he has changed his will every couple of years.
• Following a parent’s death, children may be confused or angered by how assets have been bequeathed or by whom the parent has named as fiduciary, to cite two frequent sources of family friction. However, while a parent is alive, there is opportunity for discussion and revision—a process that may ultimately bring family members closer together.

Adhere to the basics

While some of Buffett’s ideas may be surprising, his overall views on estate planning are consistent with the advice we give our J.P. Morgan Private Bank clients. In addition to the ongoing importance of keeping a will aligned with current wishes, he advises parents to:

• Communicate their plan to family at the appropriate time (i.e., when they are able, in every sense, to understand what the parents have put in place).
• Protect family wealth through the appropriate use of trusts.
• Appoint fiduciaries to manage the family’s wealth for as long as the parents feel professional management is needed.

Ultimately, the role of estate planning is to make sure, to the greatest extent possible, the wealth you have created will allow your loved ones to live their best lives and your favorite charities to pursue the philanthropic goals most important to you.

We can help

Speak with your J.P. Morgan team about whether it makes sense to incorporate these and other wealth transfer strategies into your estate plans to meet your goals.