Warren Buffett’s Charitable Trust Requires His Children’s Consent

Warren Buffett’s will leaves more 99 percent of his inheritance is donated to charity. With a net worth of over $100 billion, this money will go a long way. So who decides which charities to support? This is the big change that Buffett recently announced.

In an earlier version of his will, Buffett (then the second richest man in the world) gave the task to Bill Gates. Even though his lifetime donations to the Gates Foundation exceed $39 billion, Buffett decided that was enough. Why shift? Famous for living modestly (some even say frugal), Buffett has expressed dismay at Bill Gates’ lavish billionaire lifestyle (houses, planes, fast cars, art and a large personal staff). there is that too “disturbed by what he sees as bloat and inflated operating costs” Gates Foundation.

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New Charitable Foundation

Buffett’s will now creates a charitable trust to be managed by his three children (Susan, Howard and Peter). His children will distribute the money over a 10-year period after Buffet’s death. But here’s the catch: The three must agree unanimously on how the funds will be donated. Given that each has very different philanthropic priorities, many think Buffett is hatching a conspiracy.”a version of a benevolent ‘People’s Era'” war.

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A full-time philanthropist, Susan advocates for social justice, education, and healthcare. Howard, a farmer and former sheriff, focuses on food security, crime, human trafficking and aid to Ukraine. Musician and composer Peter supports indigenous communities and the fight against hunger. It will be interesting to see how this plays out.

Buffett defends his decision after seeing how his children have matured over the years. “I have 100% confidence in how they handle things… I like to think I can think outside the box, but I’m not sure I can think outside the box six feet below the surface and do a better job than three people who are on the surface and whom I completely trust..” Buffett adds that his children may be able to adapt to future tax and trust changes.

Harmony or Discord?

Interestingly, it is not difficult to see how creating a charitable trust that requires unanimous agreement among the three children can increase harmony or sow discord by incorporating the same structure. In this case, the outcome depends on how Buffett’s children take on this responsibility and interact with each other. Buffett clearly believes that the potential advantages associated with this framework outweigh the risks, and he trusts his children to collectively manage his philanthropic foundation.

Potential Advantages

From a family welfare perspective, the unanimity requirement has many potential advantages. By participating in distribution decisions, Buffett’s children can learn about each other’s beliefs, values, and perspectives, develop empathy and understanding for each other, and foster a shared legacy of family values. More practically, requiring consensus for payments could encourage more rigorous decision-making. Each child will be encouraged to carefully consider each charity’s effectiveness and alignment with family values, as each proposal will be subject to sibling review. Additionally, this requirement may prevent a child from dominating the discussion or disproportionately influencing the process. Conversely, a child who is less prone to benevolence or who tends to conform to others may benefit from the unanimity requirement and feel that they have an important role in the decision-making process and are responsible for the outcome, resulting in increased participation. Ultimately, the unanimous agreement requirement will require Buffett’s children to find common ground and develop a unified family vision; If successful, this could become the glue that binds future generations together.

Reducing Potential Disadvantages

On the other hand, requiring children to unanimously agree on a personally and emotionally charged decision as charitable support introduces a variety of potential problems and can lead to family conflicts and impasses. Although it is unclear what measures Buffett included in his will, several provisions may be included that could help mitigate the potential drawbacks of the unanimity requirement.

First, having a protocol for resolving disputes will help ensure that family relationships are not strained indefinitely due to constant disagreements. For example, in the event of a stalemate between three children, the terms of the trust may provide that a person or entity will serve as the tiebreaker at the request of one or more children or if certain conditions are met. The tiebreaker may be an independent surrogate, trusted family advisor, or committee of advisors appointed for this purpose, serving continuously or acting only in the event of an impasse, or the tiebreaker role may rotate among the three children. As an alternative to, or in addition to, the tie-breaking role, the trust may include provisions setting out the process for resorting to mediation if disputes persist. The trust agreement may also provide for payments to be made to one or more charities if the children do not get along.

The trust agreement may also include some flexibility in when and how the unanimity requirement is applied; This can reduce friction between siblings if they have difficulty reaching consensus. For example, unanimity among siblings may be required only for expenditures that exceed a certain dollar threshold, and expenditures below that dollar threshold may be made by majority vote, or even unilaterally by the only child. In addition, each child may be allocated a certain percentage of foundation assets to spend at their sole discretion on the causes they support.

Finally, trust can provide specific mechanisms to simplify the selection process, thereby reducing the likelihood of debate and decision fatigue. For example, the trust agreement may specify a list of approved charities or narrow charitable causes from which children must choose (for example, breast cancer research, climate change, or human trafficking). Choosing from a list of specific organizations or charities in a category can reduce friction and help children reach consensus. Charities or causes may even be selected from time to time by an independent selector to allow children to support topical issues as circumstances arise. If the children cannot agree unanimously, the trust agreement can also provide for selection by a ranking or lottery system. Each child can select a certain number of organizations that meet their criteria to receive payouts, and then children can assign each charity a weighted ranking, with payouts going to one or more organizations with the most points. Alternatively, the charity can be randomly selected by draw from a list of organizations suggested by children.

In general, with sufficient foresight, it is possible to create a charitable trust that requires unanimous agreement to allow children to enjoy the advantages of this structure, while also anticipating disagreements and containing mechanisms to prevent or mitigate conflict.