Give the money away instead of letting the taxman get it. Warren Buffett is planning to give away around 85% of his rather large fortune beginning this year. The majority of the money will be given to the Bill and Melinda Gates Foundation. Substantially smaller amounts will go to foundations controlled by Buffet's children and Buffet's own foundation, named after his late wife. This is a surprise move since Buffet had long promised the money would not go to charity until his death.
This news was indeed stunning. Buffett, 75, has for decades said his wealth would go to philanthropy but has just as steadily indicated the handoff would be made at his death. Now he was revising the timetable.
"I know what I want to do," he said, "and it makes sense to get going." On that spring day his plan was uncertain in some of its details; today it is essentially complete. And it is typical Buffett: rational, original, breaking the mold of how extremely rich people donate money.
Buffett has pledged to gradually give 85% of his Berkshire stock to five foundations. A dominant five-sixths of the shares will go to the world's largest philanthropic organization, the $30 billion Bill & Melinda Gates Foundation, whose principals are close friends of Buffett's (a connection that began in 1991, when a mutual friend introduced Buffett and Bill Gates).
The Gateses credit Buffett, says Bill, with having "inspired" their thinking about giving money back to society. Their foundation's activities, internationally famous, are focused on world health — fighting such diseases as malaria, HIV/AIDS, and tuberculosis — and on improving U.S. libraries and high schools.
Up to now, the two Gateses have been the only trustees of their foundation. But as his plan gets underway, Buffett will be joining them. Bill Gates says he and his wife are "thrilled" by that and by knowing that Buffett's money will allow the foundation to "both deepen and accelerate" its work. "The generosity and trust Warren has shown," Gates adds, "is incredible." Beginning in July and continuing every year, Buffett will give a set, annually declining number of Berkshire B shares – starting with 602,500 in 2006 and then decreasing by 5% per year – to the five foundations. The gifts to the Gates foundation will be made either by Buffett or through his estate as long as at least one of the pair — Bill, now 50, or Melinda, 41 — is active in it.
Berkshire's price on the date of each gift will determine its dollar value. Were B shares, for example, to be $3,071 in July – that was their close on June 23 – Buffett's 2006 gift to the foundation, 500,000 shares, would be worth about $1.5 billion. With so much new money to handle, the foundation will be given two years to resize its operations. But it will then be required by the terms of Buffett's gift to annually spend the dollar amount of his contributions as well as those it is already making from its existing assets. At the moment, $1.5 billion would roughly double the foundation's yearly benefactions. But the $1.5 billion has little relevance to the value of Buffett's future gifts, since their amount will depend on the price of Berkshire's stock when they are made. If the stock rises yearly, on average, by even a modest amount – say, 6% – the gain will more than offset the annual 5% decline in the number of shares given. Under those circumstances, the value of Buffett's contributions will rise.
This, of course has always been the way the super-rich keep from paying estate taxes. Meanwhile, we here at the Crabitat are busy working on the Blue Crab Foundation in hopes of getting our claws on just a few shares of Berkshire-Hathaway. We can dream, can't we?
