4 Lessons for Affluent Investors from Warren Buffett's Estate Plan
Warren Buffett's historic business success and preternatural understanding of the markets earned him the nickname "The Oracle of Omaha." But, as we discussed in a blog post earlier this year, Buffett's life and career can teach folks about more than just market movements and investing principles.
That includes estate planning. Since losing his longtime business partner, Charlie Munger, Buffett has been a little more forthcoming about succession at Berkshire Hathaway and his future plans for his large stake in the company. Affluent investors should think about four key public details in Buffett's estate plan as they plan to preserve their own legacies and provide for the next generation.
1. Have a guiding legacy philosophy.
Buffett has been a very vocal advocate for using wealth responsibly and charitably. He's a supporter of Bill Gates' Giving Pledge, "a promise by the world's wealthiest individuals and families to dedicate the majority of their wealth to charitable causes." And while he wants to support his children, he also famously quipped, "I want to leave my children enough so that they can do anything, but not so much that they can do nothing."
The importance of philanthropy and family was a legacy philosophy that Buffett shared with his business partner. Charlie Munger focused much of his $500 million in giving on architecture, higher education, and student housing, subjects which fascinated him throughout his life. And while Munger didn't sign the Giving Pledge, that was because he felt he'd already given away too much of his money to meet the pledge’s standards.
As part of our legacy planning process at Keen Wealth, we encourage folks to think about not just the financial assets they've earned, but how those assets connect to their values, beliefs, and passions. As important as it is to protect your assets and your wishes, preserving those connections is what makes a legacy plan truly successful, especially if you want to make a sustainable impact on the people and causes that are most important to you.
2. Connect your philosophy to a strategy.
Based on the public details, Buffett’s clarity of focus on his goals has resulted in a pretty straightforward estate plan.
Per The Wall Street Journal, Buffett owns around $130 billion worth of Berkshire Hathaway stock. Upon his death, Buffett's gifts to the Giving Pledge will stop. He will transfer the remainder of his wealth to a new charitable trust that will be managed by his daughter and two sons.
But, in keeping with his twin goals of philanthropy and providing for his family, Buffett does make one significant distinction in how he's handling his considerable stake in Berkshire Hathaway. His current donations, such as those to the Giving Pledge, come from Class B shares, which have diluted shareholder voting rights. Buffett's children will inherit Class A shares, which means they will still have a strong voice at Berkshire Hathaway's table for many years to come.
Buffett's famous frugality could be another reason that his estate plan seems pretty simple. He's lived in the same house since the 1950s, doesn't drive flashy cars, and spends his free time playing golf, cards, and the ukulele. Affluent folks who live a bit more adventurously or who have a wider range of beneficiaries in mind might need to consider more complex estate planning strategies.
3. Prepare your heirs.
Buffett began giving away his wealth in 2006, so his children have had almost two decades to prepare for their role in carrying on his legacy. Interestingly, once Buffett passes and the new trust is formed, donations to the four family foundations his kids currently manage will stop. Buffett's last will and testament also stipulates that the kids will have to agree unanimously on the new trust's philanthropic mission.
In the past, Buffett has said he’s against creating a foundation that will exist in perpetuity, so it's not surprising that he's planning to stop donations to the older foundations. It's not clear if the new trust will have its own sunset provisions for disbursements. But it sounds like Buffett believes that the way his kids have managed their responsibilities so far shows they're ready to manage the new trust. “I feel very, very good about the values of my three children," Buffett told The Wall Street Journal, "and I have 100% trust in how they will carry things out."
If you have a little bit less confidence in how your heirs might manage your affairs -- especially if you pass unexpectedly while they're still young -- trusts and other vehicles can help establish guardrails around when and how assets are dispersed. But involving heirs in your legacy while you're still here can be an even more powerful safeguard. Take your kids or grandkids on your next volunteer shift. When the holidays roll around, talk about what kinds of causes you'd like to support as a family and ways that you could sustain your giving throughout the year. Rather than just passing on your family business, make your preferred successor earn it by excelling in school and working through the organization from the ground floor up. The more time your heirs spend experiencing your values, the more they're going to make those values their own.
4. Be flexible.
Earlier in his life, Buffett said he wasn't planning on charitable giving until after he'd passed. There's speculation that the 2004 death of his first wife, whom Buffett had assumed would outlive him and manage his estate, changed that perspective. Two years later, Buffett signed the Giving Pledge, and the rest is history. You could also look at the Class A shares he's leaving his children and deduce that some of Buffett's thoughts about inherited wealth and his family's control over the company he built have evolved over the years as well.
Decision paralysis is a leading reason that some folks put off their estate planning. But as long as you're living and mentally fit, you can make changes to your plan too. My team at Keen Wealth often advises folks to just imagine five years out, and think about what you would want your estate plan to look like if you were to pass unexpectedly or become incapacitated. Using that smaller window as a starting point can help focus your mind on a plan that we will revisit annually as part of our checklist-driven process – and, if necessary, change to keep it in sync with your wishes.
If you don’t have an estate plan or if you haven’t updated yours in a few years, please don’t wait. Schedule a consultation with Keen Wealth and let’s make sure you have the proper legal documents in place to protect your assets and preserve an impactful legacy.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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