Smartest Decision Ever Made by Bill Gates, Warren Buffett
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FINANCIAL ADVISORS THE NEW FINANCIAL ADVISORS FAST ADVISOR MONEY TALKS
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Smartest Decision Ever Made by BillGates, Warren Buffett
Published: Monday, 3 J un 2013 | 9:08 AM ET
By: Constance Gustke, Special to CNBC.com
Bill Gates, the world's second-richest person, has said that he's
only leaving a fraction of his wealth
to his three kids, and the same is
true of his "bosom buddy" in
billionaire philanthropy, Warren
Buffett. Together, the two titans of
American capitalism created The
Giving Pledge. They've been on a multiyear road show across the
U.S. and the globe trying to convince the world's wealthiest
individuals and families to donate a majority of their estates to
charities.
Are these guys simply bighearted billionaires, aiming to
institutionalize a social streak that echoes the best impulses of
titans of former eras (say, Andrew Carnegie dotting the rural U.S.
with libraries)?
Maybe, or maybe they just don't want to deal with the nightmare of
figuring out a way to leave wealth to future generations that doesn't
end in family recriminations and bloodshed.
Figuring out a relatively smooth and peaceful way to leave wealth to
future generations could be reason enough to become bighearted in
estate planning. In the least, it's very tricky business for wealthy
parentsand their advisorsrequiring the navigation of s ibling
rivalries, entitlement issues and in some cases dwindling family
fortunes that can fuel family feuds three generations later.
Emotions can run so high that some wealth advisors bring in
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Financial literacy v ideo games and apps, and
school eff orts to teach the subject, are not
mov ing the dial.
Figuring out a smooth and peacef ul way to
leave wealth to future generations is v ery
tricky business f or the wealthy.
Couples can av oid financial headaches and
heartaches by having a discussion of their
f inances before marriage.
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psychologists or use personality tests like Myers-Briggs to get a leg
up. Some private banks have gone so far as to hire professional
actors to role-play family wealth discussions in front of
high-net-worth clients so siblings can see their potential worst sides
on display, before actually displaying them.
(Read More: Do You Need a Retirement Coach?)
If the estate-planning issues are not effectively dealt with before the
death of a parent, then the real issues will begin, said Adria Starkey,
chief operating officer of The Sanibel Captiva Trust Co. in Florida.
Rock-solid estate planning typically helps avoid heated money
battles. But material possessions, like family homes, are another
story. The kids buy little colored stickers and start putting them
around the house immediately, Starkey noted.
Sibling rivalryfrom the biblical battle between Cain and Abel to
Tyrion Lannister and his sister Cersei on the TV show "Game ofThrones"is enshrined in human life because it is a basic
biological, evolutionary process.
Attorney Mark Accettura, author of the book "Blood & Money: Why
Families Fight Over Inheritance and What To Do About It," said
siblings have historically been pitted against each other for
resources, but the fight at root is over love, and money is only a
symptom of the primal kinship psychology.
"The amount of money inherited has no affect on the acrimony,"
Accettura said, because unresolved issues can go back to the
sandbox. "Who is more loved? Who is in charge?"
Accettura gives this example. After one wealthy mother died, her two
daughters fought over her silver set. Accettura resolved the conflict
by dividing the set equally. "But they ended up fighting over the box,"
he said. "The silver set merely symbolized feeling safe and special.
It's a security blanket."
(Read More: Before You Put a Ring on It, Make a Financial
Match)
The most conflicted families use money as a way to manipulate the
kids, said Michael Sampson, a wealth advisor at JPMorgan in
Minneapolis, adding, "These families associate access to money
with love."
Breeding entitled kids is another pitfall to avoid. Large future
inheritances can encourage enabling behavior, said Rachele
Cawaring Bouchand, director of financial planning at Clark Nuber in
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Bellevue, Wash.
One family with a net worth of $30 million was enabling a struggling,
entrepreneurial son. The mother had loaned the son $2.5 million,
bailing him out over and over. Bouchand advocates documenting all
loans for inheritance reasons. And she added, "It's OK to let kids
fail."
In Silicon Valley, wealthy parents aren't handing their kids blank
checks. Parents fear transferring too much wealth and spawning a
generation of trust fund babies, said Jim Cody, director of estate and
trust services at Harris myCFO.
Instead, some parents are adopting Warren Buffett's playbook:
setting up foundations that teach kids how to handle money
responsibly. "These foundations can hold the family together,"
Starkey said, "because the family must hold quarterly meetings and
make decisions."
These days, you don't even need to be superwealthy to start a family
foundation: Families with less than $10 million can start one that
only gives away, say, $50,000 per year.
(Read more: Find Help Now to Pay for College Later)
Another method to bond the family is putting together a letter of
wishes. Sampson said it's a family mission statement that is
included in a long-term irrevocable trust, and it tells descendants
how the wealth was created and what they should think about it.
The letter keeps the family stories alive so that kids feel they're part
of something bigger when wealth is four generations removed.
Clear wills and equitable trusts that aren't overly controlling can
smooth ruffled gilded feathers. Trusts are tough to break, and wealth
transfers also happen more quickly with them. "Trusts and wills help
prevent family litigation later," Accettura said.
Also, k ids usually don't receive distributions at once. They're usually
doled out in thirds at increasingly older ages.
Another key to harmony is not controlling kids from the grave. Trusts
that tie money to future achievement, such as getting higher grades
or earning more money, typically fail. "They can fuel lots of
resentments about being controlled," said Sampson.
Accentura agreed. He doesn't believe in passing down one trust in
any form for many generations. His solution: rethinking wealth
distribution every generation.
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"If you make future generations too secure, you'll deprive them of the
ability to make their own mark," he adds, and creating wooden
standards makes inheritance issues harder. Kids have to grow into
their own adulthoodsilver spoon or not, Accentura said.
Candid family meetings about family wealth can help smooth over
anxieties inherent in this drawn out, complicated process. The team
of advisorsaccountants, lawyers and wealth advisorsare usuallyinvited too. Having these discussions is healthy, Cody said, adding,
"If issues aren't addressed, all hell can break loose later."
It's a familial form of hell breaking loose that Bill Gates and Warren
Buffett are avoiding, at all costs, in fact, at a cost running into the
tens of billions of dollars of wealth their kids won't be getting.
By Constance Gustk e, Special to CNBC.com
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