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Only 10% of family wealth makes it to the third generation, according to a landmark Williams Group wealth consultancy study reported by Reuters in 2015. But a handful of families throughout history have managed to buck this “third generation curse” to create a legacy that has lasted for centuries. Among the best known are the Rockefellers.
How John D. Rockefeller Built His Wealth
John D. Rockefeller was one of the most famous business moguls of the 19th and early 20th centuries, building his family’s fortune through the Standard Oil Company. His company controlled 90% of the U.S. refineries and pipelines at a time when a need for oil was increasing thanks to the introduction of internal combustion engines and growing demands for electricity, according to History.
Rockefeller had amassed a net worth of nearly $900 million by 1912, according to Smithsonian Magazine. That’s equivalent to about $28 billion in today’s dollars and a staggering sum by 1912 standards.
Ultimately, the Supreme Court ordered the dissolution of the Standard Oil Trust, declaring it in violation of antitrust laws. The move broke Standard Oil into a number of businesses that used the Standard Oil name. Subsequent mergers created oil and gas industry leaders like ExxonMobil and Chevron.
The Rockefeller family’s name and wealth live on — And so do its philanthropic efforts, including $500 million John Rockefeller personally gifted to charities.
The Rockefeller Family Today
The Rockefeller family is 200 members strong and has a cumulative net worth of $10.3 billion, according to Forbes. The wealthiest and most prominent family member of this century, David Rockefeller, was the world’s oldest billionaire at 101 years old, with a net worth of $3.3 billion when he died in 2017.
How the Rockefellers Created Generational Wealth
What did the Rockefeller family do right that so many other families fail to implement?
Accounted for Every Dollar
Whether your net worth measures in the seven figures or you’re living paycheck to paycheck, every dollar without a specific job is in danger of being wasted. The Rockefellers have a team of financial managers to ensure that every dollar is put to good use, leveraging their money to make more money.
Established a Family Office
The Rockefellers were the first family to establish a full-service single family office in the U.S., according to Deloitte. The Rockefeller Global Family Office manages all facets of the family’s wealth, investments and business dealings.
Created Irrevocable Trusts
The Rockefellers use irrevocable trusts, which heirs cannot easily change, to ensure that money gets passed on as it should, according to Barrons. An irrevocable trust removes assets from your taxable estate, which means your heirs might not pay tax on that money. An irrevocable trust can also protect those assets from lawsuits or creditors, which can provide a benefit if you are a high-profile personality or in a high-risk career where you might get sued.
Leveraged Legal Tax Avoidance Strategies
Although details of the family’s finances are private, the Rockefellers are thought to use a wealth-transfer strategy called the “waterfall concept.”
This strategy entails the use of permanent, tax-exempt cash-value life insurance policies to transfer wealth from one generation to the next in tax-deferred rollovers of the assets, as RBC Insurance explained in a report on the concept.
For example, grandparents might take out a policy on each of their grandchildren. For as long as the grandparents own the policies, they can use the funds however they wish. At some point, perhaps upon their death, the grandparents transfer ownership of the policies to their grandchildren. The grandchildren can use the income from the policies — and pay tax at their own rate on the distributions – and/or designate a beneficiary to receive the funds after their death.
Talked About Money
Heirs often squander their fortunes because they haven’t been taught the values that helped shape their parents’ wealth and desire to create a legacy that extends beyond themselves and their family.
For instance, the Rockefellers place a premium on philanthropy, and that is part of their estate planning, according to Barrons. In fact, the family is so well-known for their philanthropy that Bill Gates reportedly consulted with David Rockefeller for tips.
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David Rockefeller was also among the first billionaires to sign the Giving Pledge to give away more than half his wealth, Barrons reported.
Final Note
By using tax avoidance strategies like a waterfall, turning to financial advisors to help manage your wealth and having open and honest discussions with younger generations about money, you can transfer generational wealth and bypass the third generation curse.
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