Billionaire Warren Buffett offers surprise advice to all parents on finances

Billionaire investor Warren Buffett has penned a surprise letter to shareholders ahead of the Thanksgiving holiday, with the 94-year-old sharing a number of personal reflections on his children and his legacy.

With a net worth of $US150.5 billion according to Forbes, the Berkshire Hathaway chief executive is considered one of the most successful investors of all time.

His widely read annual letters are normally released in February.

This year’s letter, published on Monday, had a more personal tone as the “Oracle of Omaha” discussed his fortunate life, his children’s inheritance and the importance of philanthropy.

It also came with the announcement of a $US1.2 billion donation to four family foundations — The Susan Thompson Buffett Foundation, The Sherwood Foundation and The Howard G. Buffett Foundation and NoVo Foundation.

After his first wife Susan Thompson Buffett died of a stroke in 2004, Mr. Buffett pledged in 2006 that he would gradually give away his fortune to philanthropic foundations during his lifetime and after his death.

The latest gift reduces Mr. Buffett’s holdings of class A voting shares to 206,363, a 56.6 percent decrease since 2006.

“When Susie died, her estate was roughly $US3 billion, with about 96 percent of this sum going to our foundation,” Mr Buffett wrote.

“Additionally, she left $US10 million to each of our three children, the first large gift we had given to any of them. These bequests reflected our belief that hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing.”

At the time of their mother’s death, Mr. Buffett said their children — Susan, 71, Howard, 69, and Peter, 66 — were “not ready to handle the staggering wealth that Berkshire shares had generated”.

“Nevertheless, their philanthropic activities were dramatically increased by the 2006 lifetime pledge that I subsequently made and later expanded,” he said.

“The children have now more than justified our hopes and, upon my death, will have full responsibility for gradually distributing all of my Berkshire holdings. These now account for 99.5 percent of my wealth.”

Noting his own luck at living so long, Mr. Buffett said the down side was the now advanced age of his children, whose expected life span “has materially diminished since the 2006 pledge.”

“I’ve never wished to create a dynasty or pursue any plan that extended beyond the children,” he said.

“I know the three well and trust them completely. Future generations are another matter. Who can foresee the priorities, intelligence and fidelity of successive generations to deal with the distribution of extraordinary wealth amid what may be a far different philanthropic landscape?”

“Still, the massive wealth I’ve collected may take longer to deploy than my children live. And tomorrow’s decisions are likely to be better made by three live and well-directed brains than by a dead hand.”

For that reason, Mr. Buffett said he had designated three potential successor trustees.

“Each is well known to my children and makes sense to all of us,” he said.

“They are also somewhat younger than my children. But these successors are on the wait list. I hope Susie, Howie and Peter themselves disburse all of my assets.”

Under the arrangement, all philanthropic decisions will require a unanimous vote by the children — a requirement Mr Buffett said had surprised his wealthy friends.

“I’ve explained that my children will forever be besieged with earnest requests from very sincere friends and others,” he said.

“A second reality: when large philanthropic gifts are requested, a ‘no’ frequently prompts would-be grantees to ponder a different approach — another friend, a different project, whatever. Those who can distribute huge sums are forever regarded as ‘targets of opportunity’.”

“This unpleasant reality comes with the territory. Hence, the ‘unanimous decision’ provision. That restriction enables an immediate and final reply to grant-seekers: ‘It’s not something that would ever receive my brother’s consent.’ And that answer will improve the lives of my children.”

Mr. Buffett also offered a piece of advice “for all parents, whether they are of modest or staggering wealth.”

“When your children are mature, have them read your will before you sign it,” he said.

“Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If any have questions or suggestions, listen carefully and adopt those found sensible. You don’t want your children asking ‘Why?’ in respect to testamentary decisions when you are no longer able to respond.”

Mr. Buffett explained that over the years, he and late Berkshire Hathaway vice chairman Charlie Munger “saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry.”

“Jealousies, along with actual or imagined slights during childhood, became magnified, particularly when sons were favored over daughters, either in monetary ways or by positions of importance,” he said.

“Charlie and I also witnessed a few cases where a wealthy parent’s will that was fully discussed before death helped the family become closer. What could be more satisfying?”

Berkshire Hathaway class B shares have gained over 30 percent this year, outpacing the S&P 500’s 27 percent.

Australia’s richest now-former couple, mining billionaires Andrew Forrest and Nicola Forrest, have similarly vowed that their three children won’t inherit the vast majority of the family’s $35 billion fortune.

The money will instead be distributed to a range of charitable causes, including Indigenous support, education reform and cancer research.

Speaking to the ABC’s Australian Story in 2022, Mrs. Forrest said she didn’t want her children to be “be burdened” by such immense funds.

“We live in a home and I have a great life — but the things that are most important in life, money doesn’t buy that,” she told the program.

“Children don’t benefit from thinking they’re going to inherit a huge amount of money.”

Mr. Forrest echoed his wife’s sentiment, saying it was an easy move.

“The decision to give away everything but the personal things and goods was easy,” he said.

“You know, let’s not die wealthy. What’s the point of that?”