Your Estate Plan Could Help Grow – or Ruin – Your Family Fortune

31 Jan

Your Estate Plan Could Help Grow – or Ruin – Your Family Fortune

Most Americans have heard the names “Rockefeller” and “Vanderbilt.” The two families are firmly embedded in American culture through academia (e.g., Vanderbilt University), real estate (e.g., Rockefeller Plaza), charitable organizations, politics, etc. The progenitors of these now-iconic names were John D. Rockefeller and Cornelius Vanderbilt. Both men enjoyed incredible success in different areas of the business world which resulted in substantial fortunes. Both men left vast sums of money to their loved ones. However, the ways in which their fortunes were distributed between descendants varied greatly, which led to two completely different outcomes that highlight just how important proper estate planning can be to maintain your hard-earned fortune.

Titans of Industry

Cornelius Vanderbilt enjoyed success in the transportation industry, which included owning the New York Central Railroad system. John D. Rockefeller, on the other hand, enjoyed incredible success working in the oil and gas industry, which included founding and growing the Standard Oil company.

When Vanderbilt passed away in 1877, his net worth was estimated to be more than $100 million dollars. For context, that was actually more money than the U.S. Treasury held at that time, according to a great article written by Mark Ford.

When Rockefeller passed away in 1937, his net worth was estimated to be roughly $1.5 billion. For context, that translates to a present-day value of roughly $340 billion (which means Rockefeller would be, far and away, the wealthiest person in America).

Fortune Squandered

Vanderbilt’s estate plan was fairly simple. He left approximately 95 percent of his fortune to his son, William Henry. Vanderbilt’s will directed his son not to simply spend the fortune lavishly. Instead, he advised his son to invest the money so it would continue to grow. William Henry heeded his father’s wishes and did a fantastic job managing the family fortune. By the time William Henry passed away, the Vanderbilt fortune had doubled in size.

Here’s where it gets wobbly.

William Henry, despite having access to a vast fortune and likely a team of trained attorneys, decides to do his 19th century version of Legal Zoom and write his own will. This was a huge mistake since William Henry did not adhere to his father’s advice when passing on the fortune to his children. Instead, William Henry distributed the Vanderbilt fortune (which, let us not forget was built by father) among his children. There were no directives to invest the fortune or any limits on how the money could be spent. As a result, the Vanderbilt heirs simply burned through most of the fortune on extravagant purchases and a lavish lifestyle.

Fortune Maintained

In contrast to the Vanderbilt fortune, the Rockefeller fortune remains intact today. This is largely due to a few key estate planning decisions. John D. Rockefeller did not simply leave all of his money to his children. Instead, during his life, he donated more than $500 million to charity. He then left the remainder (nearly $460 million) to his son, John D. Rockefeller Jr.

Here is the big difference – when John D. Rockefeller, Jr. passed away, he made sure to protect the fortune his father built. He did not simply give the money to his kids to spend as they pleased. Instead, Junior created six trusts which were managed by an experienced and skilled team of financial and legal professionals. As it stands today, after six generations, the Rockefeller fortune is still in place with an estimated value of more than $10 billion.

The Takeaway

When you work hard to build a business and that business results in you accumulating a substantial fortune, it is important to have a plan in place that not only considers the potential actions of your direct descendants, but the descendants of your descendants as well. Your children could be extremely responsible, frugal, and well-versed in financial management. Nevertheless, that does not guarantee their children will embody those same traits and principles. This is why multi-generational planning is important, especially when you have earned and built a large fortune that will – and should – be a part of your legacy that lasts for multiple generations.

Speak to an Experienced Trust and Estate Planning Attorney

An experienced trust and estate planning attorney can help ensure your fortune remains intact and is no squandered. Take the time to sit down with an attorney to review all of your options and develop a plan tailored to your needs and objectives. For more information about trusts, wills, estate planning, contact InSight Law today.