As one of the wealthiest individuals on the planet, Warren Buffett’s public disclosure of some of his estate planning earlier this summer no doubt garnered plenty of interest. In addition to gaining insight as to what will happen to one of the largest fortunes in the world, there were also some valuable takeaways for clients at all different wealth levels.
Flexibility
Buffett reminds us that estate-planning documents should be flexible to anticipate any changes and be updated, or at least reviewed, periodically. In his interview, Buffett told the Wall Street Journal he’s changed his own will several times and that “[h]e arrived at the current plan after seeing how his children matured over the years.” Because it’s often hard to gauge ahead of time whether one child may end up being more financially responsible or, for example, need some extra spendthrift provisions in place, leaving flexibility to amend documents is key. Other important life events, such as divorce or moving across state lines, should also warrant a thorough review of documents, especially state-specific ones (for example, health care directives).
Transparency
For someone of extraordinary net worth, Buffett’s planning appears somewhat ordinary. In a move of transparency with the public about his plans, Buffett wrote in a newsletter to Berkshire Hathaway’s shareholders, “After my death, the disposition of my assets will be an open book—no ‘imaginative’ trusts or foreign entities to avoid public scrutiny but rather a simple will available for inspection at the Douglas County Courthouse.” Rather than use sophisticated estate-planning vehicles, he’s laying it all out for the public to see. While privacy for high-net-worth families isn’t necessarily bad, Buffett’s decision to maintain transparency underscores his philanthropic goals of helping society at large.
“Although it is unusual for parents to publicize their intentions, Buffett’s decision will certainly manage his children’s expectations of their inheritances. By using non-complicated estate planning vehicles, such as charitable planning, his estate will not be challenging to administer and should provide an extraordinary benefit to society,” said Jonathan S. Forster, shareholder/director at Weinstock Manion.
Change of Plans
One interesting and significant change Buffett announced in his interview was that his donations to the Bill & Melinda Gates Foundation will end. Buffett has given generously (more than $40 billion over the last 15 years) to the Gates Foundation as part of the Giving Pledge, and it comes as a surprise to many that his donations will end on his death. Instead, Buffett’s remaining billions will go into a charitable trust to be overseen by his three children. They must decide unanimously which causes to fund and in what amount. While not every client can fund a charitable trust or private foundation, they can still fulfill their philanthropic goals using a charitable vehicle such as a donor-advised fund.
Communication
What’s important is that Buffett’s estate plan and intentions for his wealth’s future are well-communicated with his three children. “No matter the level of wealth, communicating your plan to family/heirs and involving them in its implementation is the best way to ensure its success, “ said Malia Haskins, vice president of estate planning at Nepsis.
He’s also adamant about leaving much of the decision-making in their hands rather than trying to control things from the grave. “I feel very, very good about the values of my three children, and I have 100% trust in how they will carry things out,” Buffett told the WSJ. By trusting his children to continue carrying out the family’s philanthropic goals, he’s leaving room for them to respond to future changes to the laws and regulations governing charitable organizations and tax law updates.
While applauding his generosity, the decision to fund a charitable fund to be controlled by his children has raised some eyebrows. Specifically, the “unanimous” aspect of deciding what causes to fund has some questioning whether his three children, who have wildly different philanthropic goals and interests, would be able to agree on how to spend the money. Another article points out that the causes supported by Buffett’s children are more localized than the more global causes funded by the Gates Foundation.
“While unanimity sounds ideal, in practice, it can be a breeding ground for intense conflict and potential litigation in the event of an impasse,” said David Haughton, senior corporate counsel at wealth.com. To avoid the potential for conflict and not risk creating a delay in the foundation’s funds reaching the end charities, you “need a simple process to move the ball forward—such as requiring a ‘majority rules’ clause or having a third-party to act as a tie-breaker,” Haughton added.
While it doesn’t appear that Buffett has any special clauses written in, he still has time to act. “Because the charitable trust that will receive the majority of Buffett’s wealth arises at his death, he can modify the terms of the trust, including how the trustees manage the trust anytime before he dies. If he observes issues with how the children are interacting with regard to charitable giving philosophies, he could modify the terms of the testamentary charitable trust to put more guardrails on their autonomy,” explained Haskins. Haskins also reminds us that Buffett has said, “My sense, though, is that while they [his children] have different programmatic priorities, they have similar principles. … So my hypothesis is that they will be able to come to an agreement on how to distribute the resources."
Donor Intent
Buffett’s decision to leave control in the hands of his children rather than write out strict commands about what to do with his money will no doubt continue to be the subject of speculation for some. Let’s not forget some of the benefits of such a choice though. Just look at the recent chatter and controversy in the media surrounding charitable trusts and honoring donor intent. In the last few months, two museums have made headlines and faced public scrutiny for violating or challenging the intended purposes of donors’ bequests. Indiana’s Valparaiso University is in hot water after announcing that it wants to sell three of the museum’s most valuable paintings worth more than $20 million to fund renovations of freshman dormitories. A lawsuit was filed arguing that the plan violates the terms of the original gift agreement. Meanwhile, the Orlando Museum of Art was successful in its case in modifying restrictions on a charitable bequest, according to a spokesperson for the Museum (the donor intended to fund the acquisition of new works of art, but the Museum petitioned to redirect the funds toward maintaining its existing collection).
