Better than Buffett?

In a surprising letter to his investors earlier this week, Warren Buffett advised them to let their mature adult children read their will, before they sign it. “Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death.”, the multi-billionaire founder of Berkshire-Hathaway reasoned. His intentions are good. Buffett believes that doing so will help reduce the likelihood that there will be conflict or discord among the children after the death of the parent.

The advice didn’t go without some push back in the estate planning world. “In my experience, I have seen bad things happen when children are surprised,” said Lawrence J. Macklin, president-elect of the National Association of Estate Planners & Councils. “Most parents want to treat their children equally, but some find that it’s appropriate not to, for whatever reason — maybe one child has been very successful and the others are not.”

Depending on the family, the children, and the size of the fortune in mind, Buffett and Macklin can both point to real-world experience that helps prove their point. However, I think both are missing an important tool that can minimize or even eliminate the risk of family conflict. That tool? A carefully drafted Trust that keeps the parent’s legacy private and avoids the forum in which most family disputes are aired - probate court.

Whether you, as a parent, decide to have a conversation with your stable adult children during your lifetime or not, I can tell you the WORST place for that conversation. There is no worse place for that “conversation” to be played out than in probate court. Here’s why. The probate of a Will is a lawsuit. A unique type of lawsuit, because of the subject matter, but it is no less a lawsuit. And by detailing your estate plan - or Warren’s - in a Will, you are guaranteeing that someone in your family is going to have to file that lawsuit. Anyone unhappy with the terms of your plan has now been provided a place where they can litigate their grievances publicly. And the filing fees have already been paid for them.

Lawsuits get expensive in a hurry! Discovery requests are exchanged, seeking evidence in the form of emails, text messages, letters, and witness testimony. Evidence to bolster each child’s preconceived notion of what the result of mom or dad’s plan should be. Arguments ensue over who should be in charge. Especially if the named executor of the Will is also given an enhanced share of the parent’s assets.

In lawsuits, opposing parties adopt “legal positions” that become increasingly difficult to let go. They tend to posture, or take positions in support of their legal position and ignore what is really in their “best interests”. Advocating for a child’s legal posture can destroy lifelong and loving relationships with their siblings. Destruction of family relationships is almost never in any person’s best interest. And no amount of inherited money can compensate for that profound a loss.

Trusts, on the other hand, are purely private means of carrying out a parent’s plans for the disposition of his or her assets. Even if that parent elects not to discuss the terms of their trust during their lifetime, trusts and their supporting documents can offer the kind of detailed rationale for the decisions the parents have made that Mr. Buffett advocates for in his letter. Since they are not public, trusts offer a quieter, less stressful, and potentially far less expensive way to discuss why mom or dad wanted things handled this way. Tens of thousands of dollars in legal fees and expenses can be avoided, in favor of the trustee sitting down with the beneficiaries and sharing with them why their parent made the decisions he or she did. How those decisions reflect love for all of their beneficiaries - even if the exact dollar amounts are not divided equally.

Trusts also allow for the planner to tailor the way each beneficiary inherits what they do in the way that benefits that child the most. Stable children can be given the right to serve as the trustee, the person in charge of their own separate share trust. The fact that trusts don’t require probate also means that your directions can be carried out almost immediately; a result that 100% of beneficiaries prefer over waiting on a probate process. Finally, the fact that trusts are more difficult to defeat by litigation - litigation that has to be initiated and paid for by the disgruntled child - can also help preserve the greatest measure of peace possible.

OUR CONCLUSION

Do I generally think open dialogue with stable children is a good thing? Yes. I do. But if you find you have a child that needs to be left out of that conversation, for whatever reason, then the very discussion with the remaining children will further incite the child who feels ignored or under appreciated.

If yours is a blended family, even a happy mix of children and step-children, a conversation about estate planning can be a powder keg.

Or, if yours is a family in which millions of dollars are going to change hands, a discussion that includes the dollar amounts may well be counter-productive.

Whether you, Mr. Buffett or his investors decide a family meeting is a good idea or not, I am confident that every recipient of that letter and the one who wrote it would be more likely to preserve family peace by setting their instructions down in a Trust, rather than a Will. Requiring the filing of a lawsuit and making a stranger the arbiter of that lawsuit, is a recipe for fracturing family peace, not preserving it. So here is what we believe, as a general rule:

Communicate? Yes, as much as your family circumstances allow.
Trust or Will? In almost every case, Trust. There are a host of reasons - peace being only one - that trusts have become the cornerstone of modern estate planning. So with all due respect to you and your $25 billion in cash, Mr. Buffett, a modern trust will likely make the conversation you suggest more productive and more peaceful.

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