Take a Cue From Warren Buffett: Be Flexible With Philanthropic Strategies

Late last year, Warren Buffett announced that his fortune will be directed to a charitable trust managed by his three children when he dies.

The announcement, made via Berkshire Hathaway where Buffett, 93, is chairman and CEO, was the first indication of how the famous investor planned to distribute his assets upon his death.

The fact Buffett waited to make these plans until he was 93—and his children were between the ages of 65 and 70—is not necessarily unusual for very wealthy people whose estate plans, and philanthropic giving strategies, constantly evolve, according to wealth management experts.

“We tell our clients all the time, you want to try to have as much flexibility in your future planning as possible because you just don’t know how situations are going to change,” says Paul Karger, co-founder and managing director of wealth advisory firm TwinFocus in Boston.

Buffett, for instance, made a lifetime commitment in 2006 to distribute annual grants to five foundations: the Bill and Melinda Gates Foundation, the Susan Thompson Buffett Foundation (named for his late wife), and foundations run by each of children. Since then, he has distributed Berkshire B shares valued at about US$55 billion when they were received to these organizations, Buffett said in a June 28 statement issued by Berkshire Hathaway. The Bill and Melinda Gates Foundation—where Buffett served as a board member until Gates and French Gates announced their divorce in 2021—had received US$39.3 billion through 2023, the organization’s website said.

Annual gifts to those foundations will continue until Buffett dies and his remaining assets are transferred to the charitable trust. In the June 28 statement, Buffett said his current holdings of Berkshire A shares (which he converts to B shares to make the charitable contributions) “are worth about US$127 billion, roughly 99.5% of my net worth.”

When Buffett announced his intentions for the distribution of this fortune, he said his children “were not fully prepared” in 2006 to serve as executors of his will and trustees of the charitable trust “but they are now.”

Recognising that things change and that “it’s impossible to prepare for every scenario,” is a lesson that Karger often preaches.

Currently, Karger’s firm is working with a billionaire family that wants to give all their money away to charity. “They don’t want their kids to have any,” Karger says.

So TwinFocus is trying to introduce planning techniques to “baby-step” this family’s intentions, “because some of those decisions are not reversible,” he says. “There are seasons to our lives, and we think about life differently in different seasons. You don’t want to live with a mistake that you can’t fix, especially with this level of wealth.”

Justin Flach, managing director for wealth strategy in the San Diego office of Ascent Private Capital Management, the ultra-high-net-worth division of U.S. Bank Wealth Management, says Buffett’s strategy of providing gifts to his children’s foundations since 2006 and now deciding to create a charitable trust funded by his assets that they will manage, is an established approach.

“That’s something you see very commonly with families is that as the family starts to dip its toe into philanthropy, they need to learn together and train together and make sure they’re aligned about how they want to proceed,” Flach says. “Something like this isn’t uncommon because it just shows a family adapting over time.”

Flach also encourages ultra-rich families to begin giving away wealth during their lifetime, as Buffett has done, and he sees far more of them taking this approach today. By doing so, philanthropists can experience “their full empathy” during their lifetime. It also means they can find out if their charitable strategy works or not.

“It allows them to assess [whether] the people they’re working with are the right partners,” Flach says. It also allows them to see whether those they hope to hand their charitable assets off to are “trained and ready to take over when they’re gone.”

A charitable trust—the structure that Buffett is using to absorb his wealth—is an “irrevocable” vehicle for tax purposes, meaning, the assets in the trust can’t be taken out for anything other than distributing funds to nonprofits.

In Buffett’s case, his three children “must act unanimously” when deciding where the trust’s assets will be granted, he said. They also must designate successors. Buffett indicated he isn’t placing more rules on the trust because “wise trustees above ground are preferable to any strictures written by someone long gone.”

He did say, however, that the trust will be spent down “after a decade or so,” and will have a “lean staff.”

Setting up a charitable trust, such as the one Buffett’s children will direct, serves two purposes. It “helps them fund the family’s philanthropy long after the family members have passed,” Flach says, and “there’s an estate tax deduction for gifts to charity at death. That can be a very valuable way to reduce your estate taxes.”

The trust structure is similar to a private foundation, although only a trust can be created through a will, he says. Both vehicles are treated the same for tax purposes and have the same disclosure requirements, meaning they have to tell the IRS where the money is granted and they have to distribute at least 5% of assets each year to qualified nonprofits.

Though Buffett has chosen to have his trust spent down, a family could instead create a perpetual trust that would live on through generations, Flach says.

For very wealthy families, it’s important to regularly review estate plans, including plans for charitable giving. At least every five years, documents should be reviewed to ensure past choices still make sense and can be amended as needed, Karger says.

The super wealthy, those with assets of US$100 million or more, should consider using their current lifetime gift exclusion—currently US$13.1 million per person—to create an irrevocable trust. That would allow an individual “to move assets outside of their estate [and] let them grow for the next generation estate tax exempt,” he says.

Flach agrees wealthy families should regularly assess their estate and philanthropic planning, which, depending on a family’s situation or desire, could be annually or every few years.

“Going back through and making sure that you’d make the same decisions today

that you made when you created the plan, based on the facts of what they are today,

is a really good exercise,” Flach says. “It allows you to make sure that when ultimately you do pass on, or when you’re ultimately giving to a philanthropic cause, that your wishes are truly being carried out, as opposed to what your wishes may have been 20, 30, 40 years ago.”