On June 26, 2006, Warren Buffett announced he would start giving much of his fortune to philanthropic causes, including a pledge to donate 10 million shares of Berkshire Hathaway Inc. stock (BRK-B) to the Bill & Melinda Gates Foundation.
Q. How much is Warren’s gift worth?
A. At the time of the pledge the gift was worth approximately $31 billion. Because Warren has made a gift of stock that will be delivered over time, the value of the gift will be determined by the underlying value of those shares, which will vary over time.
Q. How will the gift be made to the foundation?
A. The gift is being implemented in annual installments. Ten million Berkshire Hathaway Inc. shares have been pledged. The first installment of 500,000 shares, or five percent of 10 million, was transferred to the asset trust in August 2006, with a value of about $1.6 billion. Each year, five percent of the remaining pledged shares will be transferred to the asset trust. In 2007, 9.5 million pledged shares remained, and five percent of those shares—475,000—were transferred to the asset trust in July 2007, with a value of $1.76 billion. That leaves 9,025,000 remaining pledged shares, which means the 2008 donation will be 451,250 shares.
Q. With the expanded resources from Warren's gift, how much does the foundation project it will spend?
A. For the next couple of years, we’ll continue on a steep climb to ramp up our grantmaking. Beginning in 2009, and continuing through the next decade, the payout target will be approximately $3.5 billion per year, tightly focused on our major areas of investment, including global health and global development, and improving access to a great education and to technology in public libraries here in the United States.
Q. Will the shares eventually run out?
A. Yes. As Warren wrote in his annual letter to Berkshire Hathaway shareholders on March 1, 2007, he has stipulated in his will that the proceeds from the Berkshire Hathaway shares he still owns at death are to be used for philanthropic purposes within 10 years after his estate has been settled. This direction will affect any remaining shares that were included in his 2006 pledge to the foundation.
Q. Are there any conditions attached to the pledge?
A. Yes. First, either Bill or Melinda Gates must be alive and actively involved in the management of the foundation. Second, the foundation must continue to satisfy the legal requirements qualifying Warren’s gift as charitable, exempt from gift or other taxes. Finally, starting in 2008, the total value of the previous year’s gift must be spent. This means that in 2009, the foundation must spend at least the amount that was gifted in 2008, in addition to the amount we would be required to spend under federal tax law.
Q. What impact will Warren’s requirements have on the foundation’s work?
A. Warren has said that he wants us to accelerate and deepen our work on the tough issues we’re working to solve, and we feel comfortable we’re on the right path to do that well. We have structured this foundation so it can grow and change. This is the guiding principle behind the structure CEO Patty Stonesifer put into place in 2006. In establishing that structure, she organized our staff and grantmaking around three major areas of grantmaking—Global Development, Global Health, and U.S. programs—each headed by a president. She also brought on board a new chief operating officer, who is responsible for building the infrastructure that will support these three program areas. With this structure, we’re on track to spend responsibly the full amount of each annual installment under Warren’s annual pledge.