The Flaw in Warren Buffett’s Estate Plan

Mr. Buffett wrote in the letter that keeping such a concentrated position of stock was not in accordance with prudent trust management and could open up trustees to litigation from beneficiaries who received less money than they expected. Berkshire Hathaway’s stock could conceivably tumble in the 12 to 15 years he expects it will take to distribute his billions to charity.

This acknowledgment might seem enough to absolve the trustees, but such directives have not always protected trustees from litigation over the management of the assets. Once a trust is funded, those trustees are managing and distributing that money for an entity that is separate from Mr. Buffett or any other person who created the trust. They are responsible to the beneficiaries, be they charities or individuals, who are expecting to get distributions that do not decrease.

“Whenever there’s money involved, people are likely to sue,” Ms. Klein said. “With individuals, there’s no more where that came from. And attorneys general are vigilant overseers of charitable funds. The best advice is: Be vigilant about performing your fiduciary duty.”

If the person setting up the trust is determined to make it restrictive, advisers recommend setting up a directed trust, which splits up the roles of trustees and gives some the right to direct actions of others. These trusts have existed for a century in Delaware, and other states have adopted them more recently, including Nebraska, where Mr. Buffett lives.

“When you look at directed trusts, it’s very clear under the statute that, with what you can give to the adviser, they’ll be off the hook,” said John D. Dadakis, a partner at Holland Knight. “In a jurisdiction like Delaware, you can say, ‘Hey, this was the guy who created Berkshire Hathaway.’ Unless you saw malfeasance at the company level, can you really say he was wrong about what he did?”

There are ways to undo what people have written into their trust documents, but they generally involve going to court for guidance. But sometimes, the documents are not as tied up as they seem.

“It may be rigid on its face, but there could be flexible provisions written in,” said Kevin Matz, a partner at Stroock Stroock Lavan. One strategy is decanting, in which the assets of an existing trust are poured into a new one. Another is looking for provisions that allow the assets to be distributed to other beneficiaries, who can then put them in their own trusts.

Article source: https://www.nytimes.com/2020/02/28/your-money/warren-buffett-estate-planning.html