By Teresa Kuhn, JD, RFC
Arguably the most well-known moneyed dynasties in American history were the Vanderbilts and the Rockefellers.
Both families gained notoriety for the vast fortunes they amassed via shrewd business maneuvers, their philanthropic gestures, and of course for family drama and scandals.
One of these families, however, was able to inject long-term thinking into their DNA and preserve generational wealth through creative estate planning. The other family became a cautionary tale of the dangers of a short-term mindset, essentially dissipating most of their wealth.
Although John D. Rockefeller was an ambitious man, he had no idea that his Standard Oil Company, founded in 1870, would propel him into becoming one of the world’s first billionaires.
By the turn of the century, the Rockefeller fortune was valued at over $600 billion in today’s dollars.
As you might know, Standard Oil later evolved into ExxonMobil and Chevron. The Rockefellers also set up one of the earliest business trusts, a trust that controlled Chase Manhattan Bank, now known as Chase Bank.
From the beginning, the Rockefellers pursued an aggressive, well-thought-out estate plan known today as the “Rockefeller Method.”
The Rockefeller estate planning method, which has been successful for over six generations, can be summed up by three core tenets:
1. You must have and maintain predictable and satisfactory income streams.
2. You must always ensure your wealth is tax-advantaged and protected from creditors.
3. You must keep your cash outside the “wealth transfer” system.
The Rockefeller family used advanced planning techniques involving different kinds of trusts to guarantee their money stayed inside the family as long as possible. Critical to ensuring those trusts stayed well-funded was their use of the proceeds of whole life insurance policies for each passing family member.
The takeaway? You don’t have to be super-wealthy to use the same tactics to create your dynastic wealth; you just need to be a long-term thinker.
Unfortunately, that other uber-rich family heralded as “American Royalty,” didn’t pull any pages from the Rockefellers. That is probably why their story does not have such a happy ending.
The Vanderbilts: Living Large and Leaving Little
The rule to the Rockefeller’s exception, the Vanderbilt’s were American Royalty who went from rags to riches back to rags, all within a few generations. Data suggests that as much as 70% of wealthy families have lost most of their net worth by the second generation. Nearly 90% of affluent families do not make it to the third generation. So, while the Rockefellers discovered a means of beating the odds, the Vanderbilts had no such luck.
Patriarch Cornelius, who accumulated his fortune in the railroad and shipping businesses in the late 1800s, was America’s wealthiest person by 1860. His son, William Henry Vanderbilt, assumed that title in the 1870s-1880s.
However, by the time Cornelius’ most famous grandchild, Gloria was born, the family fortune had begun to implode, eroded by lavish spending, gambling and alcohol addictions, bad investments, debt, and taxes. When Gloria passed away in 2019, her share of the fortune, which had once been nearly $200 million, had dwindled considerably to an estimated $1.5 million.
While the Vanderbilt fortune is not entirely gone, it was seriously depleted within a few generations. And, as of 2022, not a single one of the many Vanderbilt-founded companies remains within the family.
You don’t have to wait until you’re wealthy to do this.
If nothing else, the story of the Vanderbilts and Rockefellers should help you grasp the difference between having the long-term mindset of a producer versus the short-term thinking of a consumer. The saga of these two families is a lesson that anyone who wants their wealth sustained for future generations must have a well-structured plan. This blueprint should encompass multiple estate and tax planning techniques, including specially-designed whole life insurance.
A multi-generational wealth strategy can help any entrepreneur, self-employed person, or real estate investor create a lasting legacy.
Even if you are not wealthy yet, but plan to be, you can put your “long-termisim” to work now by mapping out a multi-generational wealth strategy. For example, one investor I know immediately saw the value in adding an Untaxable Wealth Transformation Process policy to his portfolio. In his late 20’s this entrepreneur (I’ll call him “Garrett”) was already heading a successful real estate investment firm while working as a professional property manager. Garrett is married to a woman who really doesn’t know a lot about his various enterprises. One day, he realized that if something were to happen to him, his wife would face substantial cash flow issues because most of couples’ assets and money are tied up in real estate.
Garrett recognized the fact that because his spouse doesn’t know his business as well as he does, she would have a lot of trouble liquidating assets and paying taxes and debts. Having one of the types of policies I design made perfect sense to him.
My Untaxable Wealth Transformation Process is also beneficial for real estate investors involved in limited partnerships. When you invest in a limited partnership, that investment is, for all intents and purposes, illiquid. There’s no secondary market for limited partnerships in real estate except perhaps in the case of a severe market downturn. If such a downturn occurs, the secondary market, also known as a “markdown”, is where you may get 80 cents on the dollar if you’re lucky.
In a limited partnership deal, you don’t have much control over the general partner’s decisions and little to no liquidity. You also have ZERO market downside protection. Using a specially-engineered whole life policy to finance investments could give you all those things and more. For instance, if you needed to, you could borrow against your policy’s cash value and put that money into your LP position while your policy’s cash value grows as if you hadn’t removed a cent. Strategically borrowing from your 100 Year Real Estate Investor’s policy and paying yourself back with interest is a strategy that can create exponential growth of your cash value.
In stark contrast to limited partnership deals where the operators are in charge, gives you total control. If you want to borrow from it, you can. If you want to continue to fund and grow it, you can. You can even surrender the policy if you want. Few other assets you will ever own give you the flexibility, use, control, and liquidity you’ll get in an Untaxable Wealth Transformation Process. If you’re ready to be a Rockefeller, visit my website at www.teresakuhn.com to discover exactly how I can help you do that…and more.
