Warren Buffett’s will leaves more than 99% of his estate to charity. With a net worth of more than $100 billion, that money will do much good. But who gets to decide what charities to support? That’s the big change Buffett recently disclosed.
In an earlier version of his will, Buffett (then the world’s second richest man) entrusted that task to Bill Gates. Although his lifetime gifts to the Gates Foundation exceed $39 billion, Buffett has decided that’s enough. Why the shift? The notoriously modest-living (some even say frugal) Buffett expressed concern over Bill Gates’ extravagant billionaire lifestyle—homes, planes, fast cars, art, and a big personal staff. He also has “been bothered by what he saw as the bloat and inflated operating costs” of the Gates Foundation.
New Charitable Trust
Buffett’s will now creates a charitable trust to be administered by his three children—Susan, Howard and Peter. His kids will disburse the funds over a 10-year period following Buffet’s death. But here’s the catch: the three must unanimously agree on how to donate the funds. Given that they each have very divergent charitable priorities, many speculate Buffett may be setting up “a version of a philanthropic ‘Succession’” battle.
Susan, a full-time philanthropist, favors social justice, education and healthcare. Howard, a farmer and former sheriff, focuses on food security, crime, human trafficking and aid to Ukraine. Peter, a musician and composer, supports Indigenous communities and combating hunger. It’ll be interesting to see how this unfolds.
Buffett defends his decision after seeing how his children have matured over the years. “I have 100% trust in how they will carry things out… I like to think I can think outside the box, but I’m not sure if I can think outside the box when it’s 6 feet below the surface and do a better job than three people who are on the surface who I trust completely.” Buffett adds that his children can respond to future law changes governing taxes and foundations.
Harmony or Discord?
Interestingly, it’s not difficult to see how creating a charitable trust that requires unanimous agreement among three children may promote harmony or sow discord by including this same structure. In this case, the outcome depends on how Buffett’s children assume this responsibility and interact with one another. Buffett evidently believes the potential advantages outweigh the risks associated with this framework and trusts his children to steward the charitable trust collectively.
Potential Advantages
From a family well-being perspective, the unanimity requirement has several potential advantages. By engaging in distribution decisions, Buffett’s children can learn about each other’s beliefs, values and perspectives, develop empathy and understanding for each other and cultivate a legacy of shared family values. More practically, requiring a consensus for disbursements could promote a more meticulous decision-making process. As each proposal will be subject to sibling scrutiny, each child will be encouraged to carefully consider each charity’s effectiveness and alignment with family values. Further, this requirement may prevent one child from dominating the discussion or disproportionately influencing the process. Conversely, a child who’s less philanthropically inclined or tends to defer to others may benefit from the unanimity requirement and feel they have an essential role in the decision-making process and are responsible for the outcome, resulting in increased engagement. Ultimately, the unanimous agreement stipulation will require Buffett’s children to find common ground and develop a unified family vision, which, if successful, could become the glue bonding future generations together.
Mitigating Potential Drawbacks
On the other hand, requiring children to unanimously agree on a personal and emotionally charged decision as philanthropic support presents several potential issues and may result in family conflict and impasses. While it’s unclear what, if any, safeguards Buffett has included in his will, several provisions could be incorporated that may help to mitigate the potential drawbacks of the unanimity requirement.
First, having a protocol for resolving disputes would help to ensure that family relationships aren’t strained indefinitely by continual disagreements. For example, in the event of an impasse among the three children, the terms of the trust could provide for an individual or entity to serve as a tiebreaker at the request of one or more of the children or once specified conditions are met. The tiebreaker could be an independent fiduciary appointed for this purpose, whether serving continuously or only engaged in the event of an impasse, a trusted family advisor or a committee of advisors, or the tiebreaker role could rotate among the three children. As an alternative or in addition to the tiebreaker role, the trust could include provisions setting forth the process for engaging a mediator in the event disagreements persist. The trust agreement could also provide that disbursements be made to one or more default charities if the children cannot agree.
The trust agreement could also include some level of flexibility regarding when and how the unanimity requirement applies, which may reduce friction among the siblings if they have difficulty coming to a consensus. For example, unanimity among the siblings may only be required for disbursements in excess of a certain dollar threshold, and disbursements below that dollar threshold could be made by majority vote or even unilaterally by one child. In addition, each child could be allocated a certain percentage of trust assets with which to make disbursements in their sole discretion to causes that they support.
Finally, the trust could provide for certain mechanisms to simplify the selection process, thereby diminishing the possibility for argument and decision fatigue. For instance, the trust agreement could specify a list of approved charities or enumerate narrow charitable causes (for example, breast cancer research, climate change or human trafficking) from which the children must choose. Selecting from a list of specified organizations or among charities in a category may reduce friction and assist the children in reaching unanimity. The charities or causes could even be selected by an independent selector from time to time to permit the children to support contemporary issues as circumstances arise. If the children can’t unanimously agree, the trust agreement could also provide for selection by a ranking or lottery system. Each child could select a set number of organizations that meet the criteria for receiving a disbursement, and then the children could assign a weighted ranking to each charity with disbursements to be made to one or more organizations receiving the most points. Alternatively, the charity could be randomly selected by a lottery from a list of organizations proposed by the children.
Overall, with enough forethought, it’s possible to establish a charitable trust requiring unanimous agreement that allows children to benefit from the advantages of this structure while also anticipating disagreement and incorporating mechanisms to avoid or mitigate conflict.
