Christmas Comes Early: A Closer Look at Warren Buffett's Surprise Shareholder Letter
While gifting $1.15 billion to the less fortunate, Warren Buffett also bestowed 1,400 new words of wisdom upon us all
Warren Buffett’s recent $1.15 billion charitable gift to four family foundations did not come as much of a surprise. This is now the third year in a row that he has made a sizable donation to these groups in the days leading up to Thanksgiving.
But I wasn’t expecting him to throw in a mini-letter to shareholders, too.
In it, he further explains his decision to empower his three children to distribute the Buffett fortune after he is gone.
For more than fifteen years, Buffett had planned to leave almost everything to The Gates Foundation — but, over the past year, he reversed course on that. It doesn’t get much clearer than this: “The Gates Foundation has no money coming after my death,” he told the Wall Street Journal back in June.
I don’t think Buffett’s decision requires much of an explanation. It’s perfectly natural for a father to want his children to carry out his legacy rather than a bureaucratic organization — even one run by close confidantes like Bill and Melinda Gates. (Not to mention any upheaval at the foundation stemming from the couple’s divorce.)
Still, I’m extremely grateful for this unexpected treat. While gifting $1.15 billion to the less fortunate, he also bestowed 1,400 new words of wisdom upon us all.
Talk about the perfect appetizer for his much-anticipated annual letter in February.
“Hugely wealthy parents should leave their children enough so they can do anything, but not enough that they can do nothing.”
The operative words here being “hugely wealthy”.
For us mere mortals, Warren Buffett’s thoughts on inheritance can seem a little bewildering. There’s something very human about wanting to set up your children (and future generations) for success by leaving whatever you can to them after death. Generational wealth is a common goal for many players of the money game.
But the inheritance question must be a completely different animal for the mega-rich than it is for someone like me. Buffett has, no doubt, seen many heartbreaking horror stories of children ruining their lives through drugs or ennui — only made possible by supersized inheritances from well-meaning parents.
Where us normal folks worry about not leaving enough money to provide for our heirs, those on Buffett’s financial plane face an equally worrying prospect on the other end of the spectrum: leaving them so much that it derails their lives.
I envy the rich many things, but that is not one of them.
(Some misunderstand Buffett’s position on inheritance — and claim that his children are completely on their own. Not true, as he notes here that his late wife left each one $10 million after her death.)
“The children have now more than justified our hopes and, upon my death, will have full responsibility for gradually distributing all of my Berkshire holdings.”
Warren Buffett admits that he never expected to find himself in this position. He always thought that Susie would outlive him and, thus, be the one distributing his Berkshire Hathaway stock to deserving causes. Her untimely death in 2004, though, changed the calculus on that.
Up until that point, Buffett had planned to spend his life compounding money — and then all the giving would be done posthumously. But, with Susie gone, he called an audible and began distributing his wealth in 2006. At that time, his children were not yet ready for the job of giving away such a mind-boggling amount of money.
And, now, they are. “The 2006-2024 period gave me the chance to observe each of my children in action,” writes Buffett, “and they have learned much about large-scale philanthropy and human behavior. Each has overseen teams of 20-30 for many years and has observed the unique employment dynamics affecting philanthropic organizations.”
“Those who can distribute huge sums are forever regarded as ‘targets of opportunity’. This unpleasant reality comes with the territory. Hence, the ‘unanimous decision’ provision. That restriction enables an immediate and final reply to grant-seekers: ‘It’s not something that would ever receive my brother’s consent.’ And that answer will improve the lives of my children.”
Here is the real genius of Warren Buffett’s plan. He knows, firsthand, what the future holds for his children: “[They] will forever be besieged with earnest requests from very sincere friends and others.”
Professional athletes are often shocked at how many people come out of the woodwork with hands outstretched once they hit it big. Rich philanthropists face a similar fate. When everyone wants something from you — in this case, cold hard cash — it can be disorienting, disillusioning, and disheartening.
And, while Buffett cannot solve this problem completely, he has given his children the best shield on offer. If a particular cause cannot win unanimous approval from all three children, it’s dead in the water. No need to keep asking or to try an end-around by approaching the matter from a different angle. It’s a hard no.
It will be interesting to see how this all plays out in practice. As Buffett notes, his children have differing views from him and each other on many subjects — though they “have common values that are unwavering”.
“Over the years, Charlie and I saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry. Jealousies, along with actual or imagined slights during childhood, became magnified.”
This is perhaps the most actionable part of Buffett’s mini-letter — especially for those of us unlikely to ever face the daunting question of what to do with our billions.
He suggests that all parents — whether they’re bequeathing a big estate or a small one — have their mature children read and understand their will before signing it. “You don’t want your children asking ‘Why?’ in respect to testamentary decisions when you are no longer able to respond.”
Buffett has done this with his own children — even adopting some of their suggested changes — just like his own father did with him.
It’s an easy way to short-circuit any family drama before it gets started. And the concern about will-related trouble is a very real one. In fact, it’s what led the Blumkin family to sell Nebraska Furniture Mart to Berkshire Hathaway back in 1983.
When the NFM deal was announced, Mrs. B explained that she sold the store to avoid any family squabbles over money after she eventually passed away. “Many, many times when the parents die, the kids fight,” she said. “This way, no one will fight.”
Her son Louie agreed. “There never has been any friction in the family,” he said. “This will avoid any problems that might have developed later on.”
In theory, it was the perfect solution. In practice, though, there were a few bumps in the road ahead for the Blumkins. But that’s a story for another time.
A few more great lines from the letter…
“Father Time always wins. But he can be fickle — indeed unfair and even cruel — sometimes ending life at birth or soon thereafter while, at other times, waiting a century or so before paying a visit. To date, I’ve been very lucky, but, before long, he will get around to me.”
“Equal opportunity should begin at birth and extreme ‘look-at-me’ styles of living should be legal but not admirable. As a family, we have had everything we needed or simply liked, but we have not sought enjoyment from the fact that others craved what we had.”
“I’ve never wished to create a dynasty or pursue any plan that extended beyond my children. I know the three well and trust them completely. Future generations are another matter. Who can foresee the priorities, intelligence, and fidelity of successive generations?”
“The real action from compounding takes place in the final twenty years of a lifetime. By not stepping on any banana peels, I now remain in circulation at 94 with huge sums of savings — call these units of deferred consumption — that can be passed along to others who were given a very short straw at birth.”
1.15 billion is really something along the lines of 50m per year of actual money granted. Rare is the philanthropy that will actually disburse beyond the 5% required.