A Tale of Two Estate Plans

The Biltmore House, a former Vanderbilt-family estate near Asheville, NC

Shirtsleeves to shirtsleeves in three generations.

You may have heard the adage. At its core, “shirtsleeves to shirtsleeves” describes the tendency for family wealth to erode from one generation to the next. A 20-year study by the Williams Group estimates 70% of wealthy families see their assets dissipate by the second generation. That number rises to 90% by the third.

The Vanderbilt family is an object lesson in the importance of an estate plan. When Cornelius Vanderbilt, a Gilded Age railroad tycoon, passed in 1877, the Vanderbilts were among America’s wealthiest families. He left almost all of his assets to his eldest son, who in turn put very few structures in place for the family wealth. By the mid-20th century, most of the family’s $100 million fortune (between $2-$3 billion today) evaporated in a cloud of familial strife and lavish spending. None of original companies remain with the family.

As cautionary a tale as the Vanderbilts pose, “shirtsleeves to shirtsleeves” is far from inevitable. To illustrate, we’ll turn to another American dynasty: the Rockefeller family. Through Standard Oil and other ventures, brothers William A. and John D. Rockefeller amassed an enormous empire, the value of which is closed to researchers and not precisely known. For our purposes, it is sufficient to describe it as “substantial.” In 1934, much of the wealth was placed in a family trust. A second trust was created in 1952. Both trusts are managed by professional money managers and maintain interests in the successor-companies to Standard Oil, as well as the family’s other ventures. In fact, you may be familiar with a few of Standard Oil’s offshoots: Chevron and ExxonMobil.

So why did the Rockefeller legacy last when the Vanderbilts’ did not? Well, the Rockefeller family implemented an ironclad estate plan, using special trusts, money managers, life insurance, spinoff companies, and other measures to protect their assets from erosion. Neither Cornelius Vanderbilt nor the oldest son who succeeded him did. We mortals do not necessarily need the same rigorous structures the Rockefeller family crafted to manage their dynasty, but if we wish to beat the “shirtsleeves effect,” we do need an estate plan, and we can make use of the tools available and appropriate to our individual situations. A financial planning professional can help you navigate this terrain.

This next part is crucial: as useful as tools like trusts may be, they are just a piece of the puzzle. To use yet another adage, communication is key. Conversations about your estate can be difficult to broach, but they are necessary for a smooth wealth transfer as well as maintaining the family peace. It’s important for the next generation to be prepared for the responsibilities that come with an inheritance. These conversations don’t have to cover every topic in one go, but they should come from a place of love, and it starts with opening a dialogue.

Some may find it helpful to begin these conversations by talking about family history: your family’s roots, your experiences, how you and your family built the wealth you did, and the lessons learned along the way. Sharing stories like these can help contextualize a difficult topic within a story you all share, offering the chance to pass along valuable insights to the next generation.

Preparing talking points ahead of time can also help keep the conversation on track. Money can be an emotional topic, and it’s not realistic to expect everyone to view the discussion through a lens of clinical detachment. Allow your loved ones the space to express their emotions, but if the talk becomes a battle, it may be wise to bring the discussion back to common ground, find a positive note to end on, and save the rest for another time. Sometimes, holding a family meeting in a more formal setting can help set the tone.

Most importantly, you don’t have to have these conversations alone. The presence of a neutral third party – whether a family friend, estate attorney, therapist, or financial advisor – can help keep the discussion on track.

If you have questions about navigating your estate, leaving a legacy, or intergenerational financial planning, please don’t hesitate to reach out. We’re here to help.

Disclaimers:
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tomblin Diego Porter Investment Group of Raymond James, and not necessarily those of Raymond James.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.