Forget E. F. Hutton; when Warren Buffett talks, people listen. And I don’t feel like that’s simply because he’s the world’s most famous investor, though he is. He’s a person of wisdom. A wisdom that seems to have been applied not only in his investing, but also in his marriage, his parenting, and his own personal finances.So when he recently offered his personal advice on estate planning—on how, when, and why you should talk to your kids about your estate plans—it certainly got my attention. And it offers a framework for all of us, regardless of our net worth.
Buffett’s Estate Planning Advice
“When your children are mature,” Buffett said, “have them read your will before you sign it.” So, the when is pretty clear—when our children are mature and before our will is signed. But how?
“Be sure each child understands both the logic for your decisions and the responsibilities that they will encounter upon your death.” Buffett’s instructions on how also require another step here, because to explain the logic and the roles children play in our wills, we have to understand them. You need to know your plan well enough to explain it.
This wisdom can—and should, I believe—be applied in every aspect of our personal finances. I realize that there may be many intricate complexities of some financial strategies and vehicles that require the guidance of a professional. Yet, a great rule of thumb in personal finance is that you shouldn’t enact a strategy that you can’t explain to a 5th grader. (Thanks, Larry Swedroe.) And yes, that means if you currently have strategies in place that you don’t understand, I recommend reaching out to your financial advisor to gain that understanding.
But you’re not likely to put this good advice to use without understanding why, and Buffett doesn’t leave us hanging here. He says, “You don’t want your children asking ‘Why?’ in respect to testamentary decisions when you are no longer able to respond.”
Indeed, it’s hard enough for a family to navigate the loss of a loved one, and our estate plans are, quite literally, our last words to those we love the most. Too many estate plans—either for lack of effective planning or lack of effective communication—result in a last word that is mysterious or confusing, at best. And we can eliminate that confusion by discussing our plans before we’re gone.
Estate planning certainly isn’t the first or only time we’ll have an opportunity to discuss money with our children, so how can we apply this why, when, how framework in discussing money with our kids?
Why?
First, let’s retrace why we’d discuss money with our children in the first place. Notably, Buffett comes from a generation for whom discussions of money, with just about anyone, were considered taboo. But is it not our chief responsibility as parents to raise our children to be independent and contributing members of society? How else will they learn how to grow, pro