Be a Rockefeller, Not a VanderbiltAdvisor Perspectives
Most of us have heard the proverb: “Shirtsleeves to shirtsleeves in three generations.” What many may not realize is that this is the American expression of a phenomenon that is by no means limited to this country. In Chinese, the same saying translates as “from peasant shoes to peasant shoes in three generations.” In Japan, it’s “from rice paddy to rice paddy…”; in Italy, “from the stable to the stars and back again”; and in Scotland, though covering four generations, the principle is baldly framed: “The father buys, the son builds, the grandchild sells, and his son begs.”
For decades – maybe centuries – persons of great vision and determination have been building financial legacies that they hoped would provide for their families on down through the years, but in the vast majority of cases, those legacies were mismanaged and/or squandered by subsequent generations. But there are rare cases of wealth builders who put in place structures and policies that enabled their families to continue to thrive, even long after the passing of the founding generation. In America, two famously contrasting examples are the Vanderbilts and the Rockefellers. Though Cornelius Vanderbilt’s deathbed advice to his son was “Keep the money together,” the vast fortune he had accumulated with his railroad and shipping empire was dissipated by the time 50 years had passed after his death. The Rockefellers, on the other hand, whose fortune was built during the same “Golden Age” as the Vanderbilts, still control a financial legacy that is worth billions. By means of careful planning and thoughtfully designed guidelines, they have “kept the money together,” even though they are well known for their generous philanthropic efforts in the arts, conservation, healthcare, and other worthy causes.
Be a Rockefeller, not a Vanderbilt
As financial advisors and wealth managers, we want our ultra-high net worth clients to emulate the Rockefellers, not the Vanderbilts. How can we help them do that? We provide sound investment and financial planning advice while building the type of relationship that helps to ensure that our advice will be received and followed. But beyond that, we need to help them think through estate planning, education – of themselves and those who will come after them – and governance.
Don’t make assumptions about what our clients know about all these matters. It would be easy to assume, for example, that someone who was savvy enough to put together a multimillion-dollar estate already knows about the importance of wills, trusts, and other basic estate planning tools. But a 2015 survey by CNBC.com found that more than a third of those who had $1 million or more in investable assets had no estate plan in place. This may be, in part, because of recent increases in estate tax exemptions that currently permit as much as $12.92 million per individual ($25.84 million for a couple) to be passed without incurring estate tax liability. But estate planning is about much more than federal tax consequences. For one thing, many states levy their own estate taxes at much lower thresholds than the federal exemption amount. For another, some of the most important aspects of creating and securing intergenerational wealth have little to do with taxation; they have more to do with attitudes, commitment, and understanding. All these matters must be addressed effectively for a family legacy to function for generations.
Planning for intergenerational wealth starts with a vision
Everything starts with an idea. Establishing and securing a family financial legacy is no different. Those who built the wealth have the vision for doing something great, something long-lasting. So, the all-important first step is codifying and “institutionalizing” that vision. It must be in writing and shared with everyone involved, including family members and professional advisors. Too often, for example, estate planning doesn’t go beyond what happens with the children and grandchildren after the passing of the founders. In addition to benefiting from well-designed wills and trusts, the founders’ heirs need to understand the vision for the family wealth: how the founders wish it to be used; how they intend for it to be replenished by each generation; what they want their wealth to accomplish, long after they’re gone, both for the family and for philanthropy. This document should become part of the family’s financial worldview, shaping the assumptions and understandings of each successive generation.