Most of us have probably heard the old proverb “shirtsleeves to shirtsleeves in three generations” or something along the lines of it like “The father buys, the son builds, the grandchild sells, and his son begs.” This comes from the fact that 70% of families lose their wealth by the second generation and 90% of families lose it by the third generation.

This is a huge problem, and the question is how can you avoid the same fate?

Today we are talking about two of the wealthiest families in recent history. The Rockefellers and the Vanderbilts and how they got started, where the families are today and their different plans to keep wealth through generations.

The Rockefellers.

Rockefeller is a name synonymous with wealth and you’ve probably heard of them, used one of the many businesses or went in one of their buildings like Rockefeller Center. John D. Rockefeller started Standard Oil, which is today, ExxonMobil, and built one of the wealthiest families in America ever.

For example, when he died his net worth was equivalent to 1.5% of the total U.S. GDP.

How their fortune began.

The fortune began in 1870 when Rockefeller founded the Standard Oil Company. The company would go on to control 90% of U.S. refineries and pipelines, and he would become the richest man in the world with an estimated $600 Billion in today’s dollars.

You may not immediately recognize the name The Standard Oil Company, but you will recognize what it became, ExxonMobil and Chevron. The Rockefellers also developed one of the first major business trusts, which controlled Chase Manhattan Bank, now known as Chase Bank.

Where the Family is now.

Total, according to Forbes the family is worth $10.4 Billion spread out between around 200 family members.

David Rockefeller, who passed away in 2017 at the age of 101, was the most notable family member of the modern era. He was the wealthiest member of the family, with a net worth of $3.3 billion, and held the title of the world’s oldest billionaire. He allocated most of his fortune to charitable causes, and his son, David Jr., now chairs the family foundation. Other notable descendants include fashion designer Ariana Rockefeller and retired politician Jay Rockefeller.

Rockefeller is reported to have donated over $500 million to charitable causes, and the family’s tradition of philanthropy remains strong today. Various Rockefeller family trusts have funded projects in areas such as the arts, conservation, healthcare, and international trade.

Now this is why we’re talking about them today and why it’s relevant to this channel.

We get a lot of people asking about the Rockefeller method.

Before we get into the details, we have to preface that the Rockefellers set up their family estate and legacy plan in the US which is obviously a different country from Canada. So, some of what they did in the US will be relevant for us here in Canada and some of what they’ve done won’t work under our laws and under our CRA.

The Rockefeller Estate Plan.

Most of the family fortune was held in two trusts, the 1934 Family Trust and the 1952 Trust, managed by Chase Bank.

These trusts include interests in the Standard Oil Company’s descendants and other investments like real estate.

The amassed fortune was so substantial that the family established Rockefeller Financial Services, which employs professional money managers to oversee the holding company.

This entity comprises five separate arms, each responsible for various wealth-building activities, including investments, venture capital, family businesses, family liability insurance, and risk management.

We have a great video and blog about the “Rockefeller Method” of estate planning. Which has been successful for over six generations, thanks to a carefully crafted family constitution and irrevocable trusts.

Additionally, the family ensured that the trusts remained well-funded by using the proceeds from life insurance policies for each passing family member.

Their US strategy involves what’s called an irrevocable trust. We don’t have these in Canada and the way taxation works on trusts is different here. There are different kinds of trusts you can set up in Canada but generally they all become taxable every 21 years. The Income Tax Act deems the assets of a trust to have been disposed for tax purposes.

This is where you want to work with a good Estate Planning Lawyer in Canada to set up the right type of trust and to make sure the timing of the trust suits your situation.

I must note here that cash value growth inside of a life insurance policy continues to be tax exempt and the eventual death benefit payout is tax free. You can hold a life insurance contract as an asset inside the trust, like what the Rockefellers did. And holding life insurance on all the family members ensures that there will be funds in the future as they pass away and the death benefit pays out.

Now, leaving large sums of money to young or older children can be a problem. How do you ensure the next generation doesn’t get spoiled, and continues to generate value for the family legacy if you give them too much money?

This is where the Rockefellers implemented a

Family constitution: The Rockefellers created a family constitution to provide future generations with guidance on managing and preserving their wealth. This document outlined their values, principles, and expectations, ensuring that the family’s legacy would be upheld for generations to come.

This open communication between the generations is important to ensure that your financial legacy is passed down well and can live on once you’re gone.

The Vanderbilts.

While the Rockefellers managed to avoid becoming a statistic in the 90% of families losing their wealth by the third generation, the Vanderbilts unfortunately stand as a warning and a reminder to make estate plans.

How their fortune began.

The Vanderbilts have been celebrated as “American Royalty” and iconic figures of the Gilded Age.

The history began with Cornelius Vanderbilt, who started amassing the family fortune through railroads and shipping businesses in the late 1800s.

By the 1860s, Cornelius had become the wealthiest person in America, a title he passed down to his son, William Henry Vanderbilt, who was the richest American during the 1870s and 1880s.

Another notable Vanderbilt is Gloria, Cornelius’s granddaughter.

Although she inherited a substantial fortune, it had already begun to diminish.

Her father, known for his gambling habit, squandered much of the wealth, and her mother also threatened the inheritance with frequent international travel.

Gloria went on to have four sons from different marriages, you probably have heard of one of them – Anderson Cooper the CNN news anchor.

Where the Family is now.

Notable descendants of the Vanderbilt estate include the 12th Duke of Marlborough, screenwriter James Vanderbilt, and actor Timothy Olyphant.

By the time of Gloria Vanderbilt’s passing, her estate had dwindled from $200 million to $1.5 million. Her New York apartment was left to her son Leopold Stokowski, while two of her other sons remained estranged. Most of the estate went to her fourth son, the esteemed broadcast journalist and author Anderson Cooper.

Cooper, however, has a firm stance against passing on large family fortunes. He never expected to inherit money from his mother Gloria and has earned an estimated $11 million annually through his work at CNN. “I don’t believe in passing on huge amounts of money,” Cooper said in an interview.

As a father, Cooper plans only to pay for his son’s college education. Beyond that, he expects his son to build wealth on his own.

The Vanderbilt Estate Plan.

The Vanderbilt family legacy was marked by internal conflicts, gambling, alcoholism, affairs, and even the tragedy of suicide.

Once renowned for their lavish spending and philanthropy, the Vanderbilt fortune was largely depleted by the mid-20th century.

It’s said that one of Cornelius Vanderbilt’s grandsons died in poverty.

Today, none of the businesses founded by the family remain under their control.

While the Vanderbilt fortune is not entirely gone, it was significantly reduced within just a few generations.

Some generous family trusts still exist, and several Vanderbilt descendants remain financially comfortable.

However, the Vanderbilts’ story serves as a cautionary tale about the risks of not having a strong estate plan.

Maybe this history of misfortune influenced Anderson Cooper’s decision to reject the idea of passing down wealth.

The Rockefellers vs. The Vanderbilts

The stories of the Rockefellers and the Vanderbilts offer a striking contrast in the management and preservation of family fortunes.

The differing outcomes of these families can be traced to their distinct approaches to estate planning and multi-generational wealth management.

The Rockefellers succeeded by establishing a strong family constitution and creating several trusts which kept the family fortune together.

Additionally, they formed a dedicated entity to manage their financial affairs and ventures, ensuring the preservation of their wealth over generations.

In stark contrast, the Vanderbilts lacked a cohesive estate planning strategy, leaving their fortune vulnerable to mismanagement.

The absence of a clear plan led to the rapid loss of their wealth.

From being the wealthiest Americans in the late 1800s, the family’s assets dwindled, culminating in Anderson Cooper inheriting just $1.5 million a few generations later.

While this amount is substantial for most families, it is a mere fraction of what could have been inherited if the family’s wealth had been better managed.

Control your financial future.

What these two families can teach us is that it is always important to plan for the future.

The Rockefellers had a rock-solid plan of how to hold onto their wealth and pass it on for generations, while the Vanderbilts lacked anything concrete which led them down a path of vulnerability and loss of wealth over the years.

As Canadians, we cannot use trusts in the same fashion as the Rockefellers did and still do use them.

But we can use Life Insurance in combination to get our wealth to our children tax-free and in a safe efficient manner and setting up a cash value life insurance plan for them as well.

We have a video all about the waterfall method and how we can help you set it up for your family.

We want our children to succeed us and keep the family legacy alive, so in a world full of Vanderbilts, be a Rockefeller.

Contact & More Info

We work with Canadian business owners every day to help them grow and hold onto their wealth. So, If you want to be like the Rockefellers, you can fill out the contact form below to book a meeting with us and we will get back to you within 24 hours.

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