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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.

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heartaches by having a discussion of their

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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.

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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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It's becoming easier to set up a modest trust

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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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