(FORTUNE Magazine) – Last summer Warren Buffett stunned the business world when he told FORTUNE that he would give away the bulk of his $44 billion Berkshire Hathaway fortune to charity.

Now comes the news, first reported on fortune.com, that in the latest Berkshire annual report Buffett states strict rules about what should happen to any Berkshire shares he retains when he dies--rules that challenge the way most charitable foundations are run. As he previously said, these shares will go to charity, but the new stipulations are all about speed. Once his estate is closed, which he estimates will take three years, every dollar of his gifts must be used within ten years.

By establishing this timetable, Buffett has thrust himself into a long-running debate: Should foundations focus on perpetuating their resources or spending them? And because of his reputation and the scale of his wealth, Buffett's endorsement of the latter is a landmark moment in philanthropy.

The vast majority of large foundations operate with the intent of lasting forever and therefore rarely exceed the minimum spending ratio of 5% (calculated on an organization's asset value of the previous year), which they need to retain tax-exempt status. According to data compiled by Buffett's staff, 28 of the 30 largest foundations paid out less than 5% of assets in grants in 2005. (They reached the 5% threshold by counting operating costs.)

But a small number of foundations both past and current (see box) have decided to follow a spend-down model. Why? Many want greater control over how their money is used (see "Giver's Remorse," page 61). As Buffett writes in the Berkshire annual report, "I've set this schedule because I want the money spent more promptly by people I know to be capable, vigorous, and motivated." Buffett's gifts are going to the Bill & Melinda Gates Foundation, three charities run by his children, and the Susan Thompson Buffett Foundation, named after his late first wife. (The Gateses, too, have put a time limit on the spending of their donation, stipulating that their foundation must disburse all the money within 50 years of their death.)

"As organizations grow over time the risk of bureaucracy and mission drift grows," says Harvey Dale, director of New York University's National Center on Philanthropy and the Law. Dale is also the former president, CEO, and now director of Atlantic Philanthropies, an oft-cited modern example of a spend-down foundation. Adds Dale: "[Spending down] focuses the mind."

But don't expect the Ford Foundation to go on a wild spending spree or to go out of business anytime soon. "Foundations set up in perpetuity aren't looking at this," says Gene Tempel, executive director of the Center on Philanthropy at Indiana University. "It's a lot more common with younger donors who are setting up new foundations."

Or donors who are young at heart. Buffett is 76. And he's also overseeing a charitable obligation that's increasing in size. Last June, when Buffett unveiled his plan to give away 85% of his Berkshire shares, the gift was worth $37 billion. Since then the stock has risen about 15%.

On-the-Clock Giving

Warren Buffett isn't the only major philanthropist to put a time limit on the distribution of his fortune. Here are three prominent foundations that have used the spend-down model.

ATLANTIC PHILANTHROPIES Value of grants awarded: $3.8 billionDuty-free-shop billionaire Chuck Feeney formed his organization in 1982 to help the disadvantaged. He wants Atlantic to exhaust its current $4 billion balance by 2020.

RICHARD AND RHODA GOLDMAN FUND Value of grants awarded: $523 millionThe fund has supported environmental and Bay Area causes since 1951. Richard Goldman, 86, wants the $454 million endowment spent down within ten years after his death.

VINCENT ASTOR FOUNDATION Value of grants awarded: $195 millionWife Brooke Astor ran the foundation from her husband's death in 1959 until the money ran out in 2002. Beneficiaries included New York's Metropolitan Museum of Art.