How Buffett’s Gifts Will Work

Warren Buffett outlined his gifts to the Bill & Melinda Gates Foundation and four family-related

foundations in a series of letters.

Each letter praises the recipient’s work and sets out the mechanics for contributing stock from Mr. Buffett’s holdings in Berkshire Hathaway, the investment company he heads in Omaha.

Following are the key provisions of Mr. Buffett’s letters.

Common Provisions

• A specific number of “B” shares (valued at $3,014.50 at press time) are earmarked for each recipient. Mr. Buffett will convert “A” shares that he currently owns to “B” shares.

• Five percent of the promised shares will be distributed this month, and 5 percent of the balance of the shares will be distributed to the recipient annually. While the number of shares will decrease each year, the stock’s value can be reasonably expected to increase by an amount that “more than compensates” for that decline.

• The gift must qualify as a tax- exempt charitable contribution.

Bill

• Ten million shares earmarked, contributed directly to the foundation or to a charitable intermediary. Mr. Buffett is “irrevocably committing” to make annual gifts of shares throughout his lifetime, in July “or such later date as you elect.”

• The first year’s gift will allow the foundation to increase annual giving by $1.5-billion.

• “At least one of you [Bill and Melinda Gates] must remain alive and active in the policy-setting and administration of the foundation.”

• Beginning in 2009, the foundation each year must spend the value of the previous year’s gift plus 5 percent of its net assets. Spending excesses can be carried forward and shortfalls can be made up the following year.

Susan Thompson Buffett Foundation

• One million shares earmarked, which should “more than double its spending capabilities.” The first gift should allow the foundation to increase annual giving by about $150-million.

• “I hope [the foundation] maintains its strong focus on one or two important issues, though I expect also that it will make some smaller contributions from time to time in a variety of areas, including a few that are local in nature,” Mr. Buffett wrote.

Howard G. Buffett Foundation NoVo Foundation (operated by Peter A. Buffett)

Susan A. Buffett Foundation

• Some 350,000 shares are earmarked for each foundation headed by Mr. Buffett’s children. They do not have to spend their annual contribution the year it is received.

• “But, since you will be receiving gifts annually, there is no need for you to build large reserves.”

• The pledge is good only while the children “remain alive and active in the foundation’s activities.”

• “A couple of thoughts (but not directives): Focus the new funds and your energy on a relatively few activities in which [you] can make a difference,” Mr. Buffett wrote.

“Concentrate your resources on needs that would not be met without your efforts…Consider working with your siblings on important projects. Pay attention to your home community but favor a broader view. Judge programs by how they fit with your goals and their chances for success, not by who makes the request. Expect to make some mistakes; nothing important will be accomplished if you make only ‘safe’ decisions.”

Copies of the letters are available on the Berkshire Hathaway Web site, at http://berkshirehathaway.com.