Buffett to charities: 'Spend my money fast'

In annual report, Warren Buffett addresses how his remaining Berkshire Hathaway shares should be dealt with when he dies.

By Carol Loomis, Fortune Magazine editor at large

NEW YORK (Fortune) -- Warren Buffett disclosed on Thursday that he wants to see the proceeds from all Berkshire shares he owns at death to be used for philanthropic purposes quickly. His will, Buffett says in the just-released Berkshire Hathaway annual report, stipulates that the proceeds must be spent within 10 years after his estate is closed.

That could mean, Buffett said, that in the next 25 years all of his Berkshire shares will have been used for societal purposes. This period includes his life expectancy of 12 years - "though, naturally," the 76-year-old quips, "I'm aiming for more" - plus an estimated three years for closing his estate and the 10 years stipulated for the shares to be liquidated and speedily used for philanthropy.

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Buffett's disclosures in the annual report add new detail to his philanthropic plans, first announced in a Fortune Magazine article published in its July 10, 2006 issue. That piece described Buffett's plan to gradually give away 85 percent of his Berkshire stock to five foundations. Expressed in terms of Berkshire B shares, which is the stock he said he would use for the gifts, he committed 12,050,000 shares.

The chief beneficiary of the announced gifts is the Bill and Melinda Gates Foundation. The other four recipients include foundations run by Buffett's three children, Susan, Howard, and Peter, and the Susan Thompson Buffett Foundation, named for Buffett's first wife, who died in 2004.

When Buffett announced these gifts last summer, the 85% portion of his Berkshire shares was worth $37 billion (though now, because the price of Berkshire has risen, it would be worth more). Within weeks, he made the first gifts, amounting by the terms he has established to 5%, or 602,500, of the total shares committed. These terms further provide that 5% of the remaining shares are to be given each year.

This 5% procedure guarantees that there will still be some of the allocated shares remaining in Buffett's estate when he dies. In addition, the estate may include shares from the other 15% of Buffett's Berkshire holdings, which he has said will also go to philanthropy either during his lifetime or at his death.

When Buffett made his announcements last summer, he said that he had not yet decided how any shares he owned at death were to be dealt with. The annual report now definitively answers one question: The philanthropies receiving these shares must liquidate them and spend the proceeds within 10 years. The annual report does not say straight out which charities are to be given this job. But the report implies that Buffett's intention is to divide the shares, in some way, among the five foundations.

Buffett says in his report that his plan to have the money spent speedily after his death will not please people who favor what are called perpetual foundations. But, he says, "I've set this schedule because I want the money spent relatively promptly by people I know to be capable, vigorous, and motivated."

He says that these managerial attributes sometimes wane when institutions - "particularly those exempt from market forces" - age. Today, Buffett writes, "There are terrific people in charge at the five foundations. So at my death, why should they not move with dispatch to judiciously spend the money that remains?"

In Berkshire's annual report, Buffett writes that some shareholders have expressed concern that sales of Berkshire by the foundations receiving them will depress the stock. "These fears are unwarranted," he says, pointing out that annual trading volume in Berkshire shares is only about 15% of shares outstanding. Buffett says that at most, sales by the foundations receiving the shares will add three percentage points to annual trading volume. He says that "will still leave Berkshire with a turnover ratio that is the lowest around."

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