Buffet has broken up with Bill Gates, so the $135 Billion will now go to a charitable trust controlled by his three aging children who each have very eccentric charitable goals. Oh, and they have to agree where to spend the money.
Experts worry the trust my be tied up in disagreements with very little going to charitable grants.
Warren Buffet’s net worth is not going to the Gates Foundation charity - Vox
intercst
A counterargument to the article- Warren Buffett initially donated to a different Gates foundation. Buffett’s donations went to the Bill and Melinda Gates Foundation. Even after the couple’s 2021 divorce, both of them continued to work for the same Foundation. That changed last month. Melinda French Gates has stepped down from her role at the Bill & Melinda Gates Foundation, and the Foundation has been renamed. So who knows how the direction and focus of the Bill Gates Foundation will change going forward.
I have heard that charities have to donate 5% of their endowment each year. Would that be the case here?
DB2
Buffet’s net worth is about $135 billion. Thus far, Buffet has donated $43 billion to the Gates Foundation. When he first announced his donation, his entire net worth was $43 billion.
Compounding is a helluva thing.
That’s true. But most of these large family charitable foundations are enjoying investment returns well in excess of 5% per annum.
Also interesting that the 5% charitable rule doesn’t have much of an IRS penalty if you fail to spend the 5%.
{{ The final confusing factor in the 5% payout discussion is the tax implication. It is a common misconception that private foundations are tax-exempt like standard 501(c)(3) nonprofit organizations. However, private foundations do have to pay excise tax on investment income (realized gains, capital gains, interest and dividends, etc.), albeit at a massively reduced rate. (i.e, 1.39%) And the payment of taxes counts as part of your 5% for the year. }}
Wouldn’t you love to be paying a tax rate of 1.39% on your taxable investment account. {{ LOL }}
intercst
So if it is true, then the concluding OP paragraph is a bit misleading.
“Experts worry the trust my be tied up in disagreements with very little going to charitable grants.”
5% of $135 billion almost $7 billion this year and more if the fund grows. I would not consider that “very little”.
DB2
Dr Bob,
You need to read that Pacific Foundation Services article. The 5% rule for foundations is like the 4% rule for retirement withdrawals. There’s no IRS requirement that you actually spend the 5%. The only “penalty” is that you pay a laughably small tax rate (1.39%) on the interest, dividends and capital gains that are being piled up inside the foundation.
Compare that to the penalty for failing to take the RMD from your IRA/401k.
intercst
Or maybe they could each be given $2 billion every year to sprinkle around as they like.
DB2
If Buffett wanted to do that, he could have split the $135 Billion into three $45 Billion foundations. It sounds like Dad’s plan is to get the three kids to agree on the direction of a single foundation. This is likely an example of the difficulty people encounter in controlling their fortunes from the grave.
intercst
The “experts” are greedy lawyers who want to litigate. Not one of those “experts” have sat down with the heirs. The words that come to mind, “BS”.