Where have all the Vanderbilts, Carnegies and Rockefellers Gone?

Throughout the history of the United States, there have always been super-wealthy individuals and families; but rare is the case when the superwealth lasts more than a few generations.  Think of the storied names of the well-known families of the past, the Vanderbilts, the Carnegies, and the Rockefellers.

Today, most folks know these names because of the legacies they have left, Vanderbilt University,Carnegie Mellon University, and Rockefeller Center; not because of their wealthy descendants. A striking example of that family wealth lost are the descendants of the late 19th century, industrial tycoon Cornelius Vanderbilt.  In his heyday, Vanderbilt was worth the equivalent of $100 billion in today’s dollars – but when 120 of his descendants met at a family gathering in 1973, there were no millionaires among them.

Sometimes the wealth dissipates even faster, consider Barbara Woolworth Hutton – daughter of the founder of E.F. Hutton & Company, heiress to the Woolworth’s five-and-dime empire – who inherited $900 million in inflation-adjusted dollars but passed away nearly penniless (her reputed net worth at death was $3,500).

Why does this happen?  And why do we not see many exceptions?   I believe that there are a two major reasons for this:

  • Money or Knowledge:  Growing up with the silver spoon is one thing, knowing how to make money is yet another, and keeping it is a third.  The founder of a business naturally values control, but at times they make the mistake of valuing it too much.   Being in control becomes more of a priority than sharing practical knowledge, ideas, or a vision with the next generation.  Often there simply isn’t enough time in a business owner’s 60-70 hour workweek to convey the know-how or determine an outcome that makes sense for multiple generations.
  • Estate Taxation: No one enjoys paying taxes, especially billionaires.  It is said that one of the main functions of the estate tax is a social one, rather than merely generating more revenue for the government.  Estate tax rates are historically around 50%, although currently at 40%, and they are designed to take a tremendous bite out of the superwealth these descendants receive.  When further divided among multiple descendants, this helps to prevent the super wealthy from becoming a separate aristocracy in our society, and prevents what might otherwise become financial royalty.  The other benefit of estate taxation is that many give to charity, for causes they believe in, or set up their own charitable foundations to keep doing good for generations – and the broader public – to come.

What can we learn from the history of the super wealthy? Plan with your children, instill in them the value of a dollar, and don’t make them into “Trust Babies.”  Talk to them about the value and purpose of family wealth – what wealth means to them, what it should accomplish, how it should be maintained and grown for the future – to create a shared vision can be expressed in a coherent legacy plan and serve as a financial compass.

Estate planning encompasses much more than strategies for wealth transfer, tax deferral and legal tax avoidance. Estate planning is also about conveying knowledge, and values. In the long run, these are the most valuable forms of wealth we’re able to pass onto our heirs.

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