Warren Buffett's will leaves more than 99% of his fortune to charity. With a net worth of more than $100 billion, that money will do very well. But who gets to decide what charity to support? That's the big difference Buffett recently discovered.
In an earlier version of his will, Buffett (then the second richest man in the world) entrusted that task to Bill Gates. Although his lifetime gifts to the Gates Foundation exceed $39 billion, Buffett has decided that is enough. Why the switch? The notoriously modest (some say frugal) Buffett expressed dismay at the extravagant lifestyle of Bill Gates' billionaires—houses, airplanes, fast cars, art and a large personal staff. He also has “Was concerned by what he saw as 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 children will distribute the funds over a 10-year period after Buffett's death. But here's the catch: all three must unanimously agree on how to donate the funds. Given that they each have very different philanthropic priorities, many speculate that Buffett may create “a version of a philanthropic 'succession'” battle.
Susan, a full-time philanthropist, favors social justice, education and health care. 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 the fight against hunger. It will be interesting to see how this develops.
Buffett defends his decision after watching his children mature over the years. “I have 100% confidence in how they're going to get things done… 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 20 feet below the surface and do a better job than three people on the surface that I trust completely. Buffett adds that his children may respond to future law changes governing taxes and foundations.
Harmony or discord?
Interestingly, it is not difficult to see how the creation of a charitable trust that requires unanimous agreement among three children can foster harmony or sow discord involving the same structure. In this case, the outcome depends on how Buffett's children take this responsibility and interact with each other. Buffett apparently believes that the potential advantages outweigh the risks associated with this framework and trusts his children to collectively oversee the charitable trust.
Possible advantages
From a family welfare perspective, the unanimity requirement has several potential advantages. By engaging in distribution decisions, the Buffett 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, the requirement for a consensus on disbursements can promote a more rigorous decision-making process. As each proposal will be subject to sibling review, each child will be encouraged to carefully consider the effectiveness of each charity and alignment with family values. Additionally, this requirement may prevent a child from dominating the discussion or disproportionately influencing the process. Conversely, a child who is less philanthropically inclined or tends to withdraw from others may benefit from the demand for unanimity and feel that he has an essential role in the decision-making process and is responsible for the outcome, resulting in increased of engagement. Ultimately, the unanimous settlement will require Buffett's children to find common ground and develop a unified family vision that, if successful, could become the glue that binds future generations together. together.
Mitigation of possible defects
On the other hand, requiring children to agree unanimously to a personal and emotionally charged decision such as philanthropic support presents several potential issues and can result in family conflict and impasse. While it's unclear what, if any, safeguards Buffett included in his will, several provisions could be included that could help mitigate the potential hurdles of the unanimity requirement.
First, having a dispute resolution protocol would help ensure that family relationships are not endlessly strained by ongoing disputes. For example, in the event of a deadlock between three children, the terms of the trust may provide for an individual or entity to serve as equalizer at the request of one or more children or after specified conditions are met. The equalizer may be an independent fiduciary appointed for this purpose, whether serving continuously or engaged only in the event of an impasse, a trusted family advisor or a committee of advisors, or the equalizing role may be rotated among the three children. As an alternative or in addition to the conciliation role, the trust may include provisions that provide for a process for engaging a mediator in the event that disputes persist. The trust agreement may also provide that disbursements be made to one or more predetermined charities if the children cannot agree.
The trust agreement can also include a level of flexibility regarding when and how the unanimity requirement is implemented, which can reduce friction between siblings if they struggle to reach a consensus. For example, unanimity among siblings may only be required for disbursements exceeding a certain dollar threshold, and disbursements below that dollar threshold may be made by majority vote or even unilaterally by a child. Additionally, each child can be allocated a certain percentage of the trust's assets with which to make disbursements at their discretion to causes they support.
Finally, trust can provide certain mechanisms to simplify the selection process, thereby reducing the possibility of argumentation and decision fatigue. For example, the trust agreement may specify a list of approved charities or enumerate narrow charitable causes (for example, breast cancer research, climate change, or human trafficking) from which children must choose. Choosing from a list of specified organizations or among charities in a category can reduce friction and help children reach unanimity. Charities or causes may even be chosen by an independent selector from time to time to allow children to support contemporary issues as circumstances dictate. If the children cannot unanimously agree, the trust agreement may also provide for selection by a ranking or lottery system. Each child can select a certain number of organizations that meet the criteria for receiving a disbursement, and then children can assign a weighted ranking to each charity with disbursements going to the one or more organizations that receive the most points . Alternatively, the charity may be chosen at random by a lottery from a list of organizations proposed by the children.
Generally, with sufficient forethought, it is possible to create a charitable trust that requires unanimous agreement that enables children to take advantage of this structure while also anticipating disagreements and including mechanisms to avoid or mitigate conflict.