Control Your Own Outcomes through Estate Planning

By Trust & Will 

The Rockefellers vs. Vanderbilts: A Story of Success and a Tale of Caution 

The stories of the Rockefellers and the Vanderbilts provide the perfect juxtaposition on what can happen to a family fortune. Each family’s approach to estate planning and multi-generational wealth planning are the critical pivot points that led to drastically different outcomes. 

The Rockefellers succeeded by having a strong, central family constitution, plus several irrevocable trusts that could not be touched nor reversed. In addition, they essentially created a business devoted to the management of their family’s financial affairs and ventures. These elements have helped to ensure that generational wealth is preserved in the long run. 

In contrast, the Vanderbilts’ lack of an estate plan shows how quickly family wealth can erode. There was no apparent family estate planning strategy, leaving the family fortune vulnerable to irresponsible behavior. We’ve witnessed the family diminish from being the wealthiest Americans in the late 1800s, down to Cooper’s inheritance of $1.5 million just a few generations later. Although this sum is quite large for most American families, it grossly pales to what Cooper and others could have inherited if the family fortune hadn’t been squandered. 

Control Your Own Outcomes through Estate Planning 

What the Rockefellers and the Vanderbilts taught us is that multigenerational wealth planning is equally important as planning for our own wealth. The average American spends the majority of their life working towards personal financial goals, such as saving up for a house and for retirement. However, more of us need to be thinking about how we can build wealth to pass down to our loved ones, and how to prevent those loved ones from squandering anything we do manage to pass on. 

This can be done by creating a plan. Your plan should include clear goals that identify how you want to leave your legacy, and how you want any wealth sustained for your future generations. For example, if you are passionate about philanthropy, you could make charitable gifts through your estate, as well as focus some of your wealth-building activities on socially responsible investments.  

Any wealth you do build should be protected by your estate plan. This is a collection of legal documents, including a Will and a Trust, that designate how you wish your assets to be managed upon your passing. For example, the Rockefellers used a series of irrevocable trusts that helped pass down wealth to future generations. These Trusts both fund and remain funded through premium life insurance policies, and include strict stipulations that protect the family from the risk of irresponsible behavior.  

Because their wealth was immense, these families likely took advantage of sophisticated estate planning and tax strategies to preserve their wealth as much as possible. This is because transferring wealth in the U.S. is highly taxed. There are several strategies to protect your family from certain taxes such as the estate tax, gift tax, inheritance tax, and the generation-skipping transfer tax (GSTT). The use of a dynasty trusts is just one of many strategies available through estate planning.  

Last but not least, communication is key. Research finds that a lack of family communication is one of the key mistakes that leads to wealth erosion. According to Nasdaq, family wealth is lost in part because: 

  • Families don’t talk openly about money. 
  • Parents and grandparents are secretive about the family wealth and estate plans because they worry that the next generations will become lazy or entitled. 
  • Thus, children and grandchildren are ignorant when it comes to the value of money, how to manage and build wealth, and how to pass it on to the next generation. 

By having open lines of communication with your family members, you can have peace of mind knowing that your heirs are aware of and are on board with the family estate plan. That way, when they eventually inherit your estate, they will have increased chances of continuing the legacy that you envisioned. It wouldn’t hurt to include a written family wealth planning manual in your estate plan. 

Begin to Build Multigenerational Wealth Today 

Know that planning multigenerational wealth for your family doesn’t require you to be wealthy today. As we learn repeatedly throughout history, it just takes one person to take their family from rags to riches.  

Financial experts recommend starting small by building up your own savings, for retirement and emergencies. Then, you can begin to acquire wealth-building assets that you can pass on, such as real estate and other investments. This is when you really start gaining some traction, as your money will start working and growing upon itself with your manual labor. Most Americans don’t get to this stage until later in life, so don’t worry if you feel like you’re behind. The most important piece is to have a game plan and make clear, actionable steps towards your goals. 

What we can also learn from history is to not repeat the mistakes of others. The Rockefellers had a steadfast estate plan, while the Vanderbilts did not. Even the most modest of estates should be protected by a Trust or a Will. Be sure to protect yourself and your future generations loved ones by setting up an estate plan right away.