Tibetan Buddhism has many sects, which have introduced their own system for disciples to take over the teaching from their masters so as to safeguard their established interests and defend their own rule. This constitutes one of the social factors contributing to the introduction of the Living Buddha incarnation system.

Garma Gagyu was the first among the various sects of Tibetan Buddhism to introduce the Living Buddha incarnation system. In 1283, when Garma Baxi, an eminent monk with the Garma Gagyu Sect who had been bestowed with the title of Imperial Tutor by the Mongol Khan Mongo, was granted a gold-rimmed black hat as the badge of office on his deathbed, he expressed a wish to find a boy as his reincarnation to inherit the black hat. This was the beginning of the black-hat Living Buddha reincarnation system. Other Tibetan Buddhist sects followed suit. The Dalai Lama reincarnation system was introduced in the 16th century, and that for the Panchen Erdeni in 1713. When the Gelug Sect took over power in the 17th century, the Living Buddha reincarnation system became a means employed by those in power in Tibet to seek prerogatives. To turn the tide, the Qing court promulgated the 29-Article Ordinance for More Effective Governing of Tibet in 1793. Article 1 of the Ordinance prescribed the introduction of the system of drawing a lot from the gold urn to determine the reincarnated soul boy of a deceased Living Buddha. For this purpose, the Qing court had two gold urns made: one for the Dalai Lama and the Panchen Erdeni, which is still kept in the Jokhang Monastery in Lhasa; and one for Grand Living Buddha and Hutogtu Living Buddha in Mongolia and Tibet, which is still kept in the Yonghegong Lamasery in Beijing.

The State respects the faith in and practice of Living Buddha reincarnation, as well as the religious rituals and historical institution of Tibetan Buddhism. In 1992, the State Council Bureau of Religious Affairs approved the succession of the 17th Karmapa Living Buddha. In 1995, the Tibet Autonomous Region, at the approval of the State Council, accomplished the seeking and confirmation of the 10th Panchen's reincarnated soul boy and the conferment and enthronement of the 11th Panchen, after going through the procedure of drawing a lot from the gold urn.

More than 30 Living Buddhas have been determined as new Living Buddhas with the approval of the State Council and TAR government following the end of the Democratic Reform in 1959.