An estate planning expert advises that you can learn from Warren Buffett's updated will, regardless of your wealth level.

As Warren Buffett, the 94-year-old billionaire and chairman of Berkshire Hathaway, approaches the end of his life, he aims to provide guidance on how to distribute his wealth. Throughout his illustrious career as an investor, Buffett has become a leading role model for those seeking to amass wealth.

On Monday, Buffett revealed more information about his estate plan in a letter published, detailing how he plans to give away most of his wealth to charitable causes.

He will continue contributing to certain charities while alive, and his estate will be placed in a charitable trust overseen by his daughter and sons, who must decide unanimously which charitable organizations to donate to and in what quantities.

Earlier this year, Buffett stated in the Wall Street Journal that his plan was to provide his children with the flexibility to adapt to the evolving requirements and landscape of charitable organizations.

Buffett said, "While I believe I can think creatively, I'm unsure if I can do so six feet underground and outperform three trusted individuals on the surface."

In his letter this week, Buffett revealed that, although he still trusts his children's judgment, he realizes that, at the ages of 71, 69, and 66, they may not be able to distribute the entire estate during their lifetimes. As a result, he appointed three younger trustees to succeed his children should they pass away before the trust is depleted.

Buffett conveyed his plan to his offspring, whom he hopes will manage to distribute all of his assets.

Experts suggest that there is much to be learned from Buffett's open and direct approach to estate planning, regardless of the amount of money you have to give away, whether it is $100 million or $100,000.

"Jose Reynoso, head of advanced estate and tax planning at Citizens Private Wealth, advises starting early and building in flexibility for wealth planning."

Why you need an estate plan now

Having an estate plan allows you to control what happens to your assets after your death or incapacitation, rather than leaving it up to someone else to decide.

Reynoso states that if you don't have an estate plan, the state will create one, which may not align with your wishes regarding healthcare and financial decisions.

To avoid legal complications and keep your loved ones out of an expensive legal process, it is wise to create a basic estate plan that includes essential components.

1. Designating a beneficiary for certain financial instruments, such as investments, bank accounts, and life insurance policies, ensures that the contents of your account are passed on to the designated individual upon your death. These designations typically take precedence over a will, so it is crucial to keep them current, particularly after significant life changes, experts advise.
2. Creating a will is a straightforward process that can be accomplished by using templates available for free on websites such as LawDepot.com.
3. In different states, powers of attorney and advance directives may have different names, but their purpose is to express your wishes and appoint a decision-maker on your behalf if you become incapacitated.

It may be wise to seek legal advice from an estate attorney to determine the best course of action, as the situation may become more complex. One option to consider is setting up a trust, similar to what Buffett has done.

The key to success, like the billionaire, is to begin early and communicate frequently.

"Reynoso states that the family's plan, as communicated publicly by Buffett, is well-thought-out and can help prevent future issues."

Buffett recommends that parents, regardless of their wealth, should have their children read their will before signing it.

How to estate plan like Buffett

To ensure that a substantial portion of your wealth goes to charity after your passing, you can establish a charitable trust or a private foundation, similar to Buffett's approach. However, these options are typically expensive and reserved for the wealthiest individuals.

Achieving a plan similar to Buffett's is possible through a charitable account called a donor-advised fund, which allows you to control the funds and earmark them for charitable giving. You can open a DAF with a community foundation or through the charitable arm of a brokerage firm, such as Vanguard or Schwab, and there's usually no minimum deposit.

These accounts allow donors to deposit various assets, such as cash, real estate, and stocks, and decide how to invest and where to donate them.

The primary attraction for living donors is the immediate tax deductions they receive for contributing to the fund, while still having the flexibility to determine where the funds are ultimately allocated. In the event of death, a designated successor can assume control of the account.

If your fund contains appreciating assets, you and the charity of your choice do not owe capital gains tax when you make a donation.

An ideal option for those seeking to replicate Buffett's approach on a smaller scale is a vehicle recommended by Nicholas Yeomans, a certified financial planner, estate planning specialist, and president of Yeomans Consulting Group. However, it's always advisable to consult with an estate planner or other financial expert before establishing such an account.

A DAF can be funded both during one's lifetime and at death, and it has the ability to provide indefinitely, according to Yeomans.

You could establish multiple funds for your children to allocate towards charitable causes of their preference after your passing, or you could make receiving other portions of an inheritance dependent on deciding where the money in the DAF is distributed as a family, similar to the Buffett setup but more straightforward.

"Yeomans suggests that your DAF can continuously contribute to churches, charities, and museums, without the need for a separate tax ID number, board of trustees, or complicated procedures, making it an ideal option for individuals in middle America seeking to make a difference."

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