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When Warren Buffett speaks, the investment world listens. But the Oracle of Omaha's latest pronouncement involved a different type of investment than Wall Street is accustomed to -- one that could change the world. Buffett, the planet's second richest man, announced that he would donate 85% of his fortune -- more than $40 billion worth of Berkshire Hathaway stock (at today's prices) -- to a charity affiliated with the world's richest man, Microsoft's Bill Gates. Buffett designated the Bill & Melinda Gates Foundation, the country's largest foundation, as the primary beneficiary.
Buffett's move sets a standard not just for the amount of his largesse but for the way he's giving his money away. "The way he is making his gift is an argument in support of having one's charitable dollars operate as efficiently as possible," says Larry Richman, chair of the private wealth services group at Neal, Gerber & Eisenberg, LLP, in Chicago. "It tells people of more modest means to look to the overall efficiency of the organization to which they are giving."
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Reversing his earlier plan to give away his money after his death, Buffett's gifting plan, the largest commitment in philanthropic history, will begin next month. He has earmarked 10 million shares of Berkshire Hathaway's B shares for the Gates Foundation. He will give away the first installment of 602,500 shares this month and will turn over 5% of the remaining balance each year until his death. Buffett will serve as a trustee of the Gates fund, which focuses on global health and education. The remainder of his philanthropic dollars will go to foundations run by his children and one that he created with his late wife, Susan, who died in 2004.
Every bit helps
While the charitable contribution of the average American pales in comparison with Buffett's enormous gift, the combined generosity of millions of Americans is impressive. Individuals were responsible for more than three-quarters of the near-record $260 billion donated to charities last year, according to Giving USA, the yearbook of philanthropy. Nearly half of the 6% increase in giving in 2005 was in response to natural disasters, including the tsunami in Indonesia, the earthquake in Pakistan and the triple Gulf Coast hurricanes.
Del Martin, vice-chairwoman of the Giving USA Foundation, doubts that Buffett's gift will inspire average Americans to step up their contributions, as last year's disasters did. But she hopes it will prompt wealthy individuals to think about how they give. "I hope it will inspire people of means to think about giving money to existing organizations rather than setting up their own," Martin says. "We haven't seen this before -- someone giving a large amount to another foundation because they trust in the work."
Here are some suggestions to stretch your charitable contributions in a way that would make Buffett proud. And like him, you can enjoy watching the effects of your legacy while you're still around. You also get to lower your tax bill in the process.
Donor-advised funds
If you want to create a philanthropic legacy while getting the maximum tax benefit from your largesse, consider a donor-advised fund. With this charitable-giving fund, you turn over assets to an intermediary organization run by a financial services firm, a community foundation or charitable group. (Fidelity, T. Rowe Price, Schwab and Vanguard all offer donor-advised funds.) You get a tax deduction in the year you make the contribution and then you advise the program how to disburse the money. The fund's sponsor handles the paperwork.
While the specifics of setting up an account vary by sponsor, many of the steps are identical. You donate cash, stock or other assets, such as real estate or art, to a sponsor. Stocks and other noncash donations are then sold and the proceeds are either added to a common pool or placed into the donor's account. In return for the donation (perhaps $10,000 to start, although subsequent donations can be smaller) the donor can direct money to registered charities. Contributing noncash assets to a donor fund cuts a pile of red tape -- especially if the donation includes appreciated assets -- and avoids the capital-gains taxes you would incur if you sold them on your own.
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