Authors: Attorney Daniel J. Schlichting & Law Clerk Elizabeth L. Spencer
Phone: (608)-257-0945
Email: dschlich@hbslawfirm.com
Warren Buffett is quoted as saying that, “[t]he perfect inheritance is enough money so that [children] feel they can do anything, but not so much that they could do nothing.” 1 At the 2013 Berkshire Hathaway annual general meeting Buffett was asked about estate planning and how to fulfill the goal of the previous quote. 2 Based on his response the following tips can be gathered and employed in almost any estate plan even if you don’t have the same wealth as Buffett.
1. Involvement of Children.
At the AGM Buffett emphasized that your estate plan and limiting an inheritance will not be what prevents a child from becoming spoiled or entitled. The attitude of the parents and the environment in which they create for their children will influence this outcome. However, he also emphasized the importance of involving your children, or any potential beneficiary, now in the planning of your estate. A lack of communication between the settlor of an estate plan and its beneficiaries can result in unrealistic expectations and disputes once the settlor has died if the beneficiaries don’t receive what they may believe they deserve. Informing the beneficiaries now of your plans will also allow them to plan for their own futures and will settle their expectations.
Additionally, if your plans include the passing on of a business to your children it is important to have them involved early on so that they can begin having responsibility in the organization and there will be a smoother transition when they transition into taking on more responsibilities.
2. Maintenance and Revision.
Buffett stated that he revises his will every 5 or 6 years. Many people view estate planning as one time event. However, after the initial creation of your plan you should be contacting your estate planning attorney at a least every few years. First, your estate planning attorney can keep you informed of any changes in relevant law that may influence the efficacy of your plan. For example, the current estate tax exemption is $5.49 million but in 2001 it was only $675,000. The most effective plan in 2001 for avoiding estate tax may not be the most effective plan now. The purpose of a plan can be lost if it is not in compliance with the correct laws. Second, you should be informing your attorney of any big changes or acquisitions of assets. Finally, you should review your plan to make sure it is still in harmony with your current desires or if relationships or situations have changed that would result in changing the beneficiaries. For example, if you have a child who has become more financially successful and another that has suffered extensive illness that will hamper their long term ability to work you may choose to readjust the allocation of your assets.
3. Charitable Giving.
Finally, Buffett encourages those that have wealth to consider charitable donations. Buffet emphasized that “the money has far more utility to society” than creating a situation in which your children do not need to work.3 Even though you may not have the wealth of Buffett you may consider making small specific bequests of a designated amount, residuary bequests that give a portion of your remaining estate after expenses and designated gifts to other beneficiaries have been distributed, or consider making your contingent beneficiary a charitable organization. Gifts of any size leave a lasting legacy.
Each estate plan is unique based on the assets, relationships, the beneficiaries, and personal desires of each grantor. While Buffett points out three things to remember when estate planning your individual situation is what will guide the ultimate decisions. Consulting with an attorney who can review and draft documents best fitting your assets, goals, and potential tax consequences is what will ultimately lead to the most hassle free process.
[1] Richard I. Kirkland Jr., Should You leave It All to the Children?, http://archive.fortune.com/magazines/fortune/fortune_archive/1986/09/29/68098/index.htm.
[2] Thane Stenner, Lessons in Estate Planning form Warren Buffett, http://www.theglobeandmail.com/globe-investor/investment-ideas/lessons-in-estate-planning-from-warren-buffett/article12022903/.
[3] Id.
