What we learn from the Vanderbilt and Rockefeller families about intergenerational wealth transfer

The story of Cornelius “Commodore” Vanderbilt, who amassed one of the largest fortunes in American history is fascinating and salutary. 

Born into modest circumstances on May 27, 1794, in Staten Island, New York, Vanderbilt’s early  life was marked by hard work and ambition. At the age of 16, he borrowed $100 from his mother to start his own ferry service, a venture that laid the foundation for his future empire. 

Vanderbilt’s relentless drive and business acumen saw him rise from these humble beginnings to become one of the wealthiest individuals of his time. By the time of his death in 1877, he had accumulated an estate worth over $100 million, equivalent to around $200 billion today. 

Vanderbilt’s personal life was marked by his dedication to his work and his family. Despite his immense wealth, Vanderbilt maintained a relatively modest lifestyle compared to the opulence of his descendants. His work ethic and frugality were key to his success, traits that were unfortunately not as prevalent in later generations of the Vanderbilt family.

Despite the vast wealth left by Commodore Vanderbilt, his descendants faced significant challenges in preserving it. By the 1970s, the family fortune had largely disappeared, and none of his 120 descendants were millionaires. Several factors contributed to this decline: 

3. Lavish spending and lifestyle inflation: Subsequent generations of the Vanderbilt family engaged in extravagant spending. The memory of the hard work and frugality that built the wealth faded, leading to a pattern of overspending and lifestyle inflation.
4. Lack of a simple, robust investment strategy: The original wealth creators often possess a deep understanding of how to grow and sustain their wealth. However, their descendants may lack these skills or the interest in maintaining such investments. Without a focus on simple, robust investment strategies, the family assets can stagnate or diminish in value over time.
5. Insufficient estate planning: Effective estate planning is crucial for the long-term preservation of wealth. Unfortunately, many families do not adequately plan for the transfer of their assets. This can lead to disputes, mismanagement, and a rapid depletion of wealth.
6. Dispersion: as any farmer will tell you, you can’t keep splitting a farm into smaller and  smaller pieces and expect it to remain viable. Failure to maintain a concentration of  family wealth leads to a loss of influence and the capacity to grow it effectively. 

By contrast, John D. Rockefeller, who founded the Standard Oil Company in the late 19th century also became one of the wealthiest men of his time. Over the years, the Rockefellers have not only managed to maintain their wealth but have also become known for their significant philanthropic efforts. 

The Rockefeller family’s success in preserving their wealth across generations has been attributed to several key strategies: 

1. Establishment of Trusts: The Rockefeller Trust, established in 1882, played a crucial role in consolidating the family’s business interests and providing a stable structure for managing their wealth. This trust helped protect their assets from economic fluctuations and changes within the family. 
2. Multigenerational vision: The Rockefellers instilled a sense of responsibility and purpose in each generation. By emphasizing the importance of preserving and growing the family wealth, they ensured that future generations were committed to maintaining the family’s legacy. 
3. Professional management: The family entrusted professional managers to oversee their investments. This approach allowed them to benefit from expert financial advice and adapt to changing economic landscapes, contributing to the long-term success of their wealth management. 
4. Diversification: The Rockefellers maintained a well-diversified investment portfolio, including bonds, real estate, energy, and other assets. This diversification helped mitigate risks and ensured the steady growth of their wealth. 
5. Philanthropy and values: The family placed a strong emphasis on philanthropy and aligning their wealth with their values. They supported educational institutions, cultural programs, and environmental conservation, which not only benefited society but also reinforced a sense of purpose and unity within the family.
6. Family governance: Creating family governance structures, such as family councils, helped foster communication and collaboration among family members.

These strategies collectively enabled the Rockefeller family to preserve and grow their wealth while maintaining a positive legacy. Only a tiny minority of families manage to preserve and grow wealth for multiple generations. 

According to “The Missing Billionaires” by James White and Victor Haghani, in 1900 there were 4000 millionaires in the US. If one quarter of these started with $5 million, invested in the stock market and spent at normal rates there would be 16,000 billionaire families in the US today.  

Instead, there are just 700 and it is hard to find one who traces their wealth back to 1900. We don’t have to be billionaires or even millionaires to want to leave a lasting legacy for those we love when we “depart this mortal coil”. 

Each of our descendants will end up choosing their own set of values, and no set of siblings will have identical beliefs, skills and ability with money. One way to show that we really care about our children and succeeding generations is to put in place some investment and estate planning guardrails that can help them emulate the Rockefellers instead of the Vanderbilts.