Warren Buffett's Evolving Estate Plan
Warren Buffett has revised his will to leave his remaining assets at the time of his death to a new charitable trust run by his children.
It is not unusual for Americans to modify their estate plans many times as circumstances change. While most of us cannot possibly relate to the immense responsibility of allocating hundreds of billions of dollars, many of us can relate to changing our wills and trusts over the years.
For many decades, Warren Buffett anticipated that his first wife would outlive him and he planned to rely on her to oversee their estate. When Susan Buffett died in 2004, Mr. Buffett had to alter his plans. In 2006, he began directing annual gifts to the Gates Foundation and four family foundations run by his children. However, how Mr. Buffett’s residual estate at the time of his death would be handled remained in question. I have written about Mr. Buffett’s philanthropic activities many times over the years, most recently in November 2023 when he accelerated gifts to his family foundations.
This morning, the Wall Street Journal reported that Warren Buffett will direct his estate at the time of his death to a new charitable trust that will be overseen by his children. His giving to the Gates Foundation will come to an end at the time of his death, according to a direct quote attributed to Mr. Buffett. Matching his style of delegation at Berkshire Hathaway, Mr. Buffett plans to place great trust in his children to run the charitable trust without attempting to dictate specific policies.
“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.”
…
“It should be used to help the people that haven’t been as lucky as we have been,” he said. “There’s eight billion people in the world, and me and my kids, we’ve been in the luckiest 100th of 1% or something. There’s lots of ways to help people.”
For the rest of Mr. Buffett’s life, annual gifts to the five foundations will continue, as Berkshire Hathaway announced this morning in a news release. The announcement regarding the new charitable trust only affects the assets remaining in Mr. Buffett’s estate at the time of his death.
Warren Buffett has one of the most remarkable philanthropic records in history. He has given away more than half of his Berkshire Hathaway Class A shares, always converting them to Class B shares with diminished voting rights prior to making donations. Berkshire Hathaway’s share price has advanced over the past eighteen years, more than offsetting the value of his gifts, and Mr. Buffett currently owns $127 billion of Berkshire Class A stock. At nearly ninety-four years of age, Mr. Buffett continues to run Berkshire Hathaway and he has not announced any major health problems or any intent to retire.
What a man chooses to do with his assets upon his death is his own business, and Berkshire Hathaway shareholders who have benefited from Mr. Buffett’s extraordinary record and microscopic pay over nearly six decades should respect any decisions he chooses to make with his shares. At the same time, it is obvious that Berkshire Hathaway’s future depends on voting control. The new charitable trust will receive Mr. Buffett’s Class A shares and his children, as trustees, will exercise considerable influence over Berkshire’s governance for many years to come. In contrast, recipients of Mr. Buffett’s annual gifts have received Class B shares with less voting rights. This distinction is important.
Mr. Buffett has made it clear in the past that he is not interested in establishing a foundation that will live in perpetuity. When his will is made public at the time of his death, I suspect that it will include general guidelines regarding his wishes for the disbursement of the assets within the new charitable trust. The extent of the voting influence that his children will exert over time will depend on how quickly the new charitable trust depletes its assets. Charitable trusts are required to spend just five percent of assets per year, a rate that would likely result in an indefinite lifetime assuming even mediocre returns on Berkshire stock, so I assume the rate of disbursements will be somewhat greater.
Warren Buffett cares a great deal about Berkshire’s culture and how it will evolve in the decades after his death. The owners of Class A stock will have a disproportionate influence on the culture. Knowing that Mr. Buffett’s children will have this influence, at least for a decade and perhaps longer, is reassuring. Presumably, they will convert Class A shares to Class B before giving away any Berkshire stock. The question is who will own the remaining Class A shares two or three decades from now.
I have proposed splitting the Class A shares, perhaps 50-for-1, to allow more longtime individual Class A owners to retain their shares rather than converting to Class B for tax reasons or selling their Class A shares in the open market, most likely to institutional investors. I still think that this idea has merit. If the Class A shares trade around $12,000 rather than $600,000, longtime individual investors could sell part of their holdings while controlling tax consequences or they could give a Class A share to family members or friends within the annual gift tax exclusion which greatly helps with estate tax planning.
Without a split of the Class A shares, it is inevitable that remaining longtime owners will convert to Class B shares before selling to control capital gains tax consequences. Those who sell Class A shares without first converting to Class B will almost certainly be selling to institutions who are far less likely to vote in accordance with retaining Berkshire’s unique culture. Mr. Buffett rightly considers most stock splits to send the wrong message, but I hope he considers the merits of doing so in this unique case, since I think it will help preserve the corporate culture that he’s spent a lifetime building.
Copyright, Disclosures, and Privacy Information
Nothing in this article constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC. The Rational Walk is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.
Individuals associated with The Rational Walk LLC own Class A and Class B shares of Berkshire Hathaway.