“Shirtsleeves to shirtsleeves in three generations.” “The father buys, the son builds, the grandchild sells, and his son begs.” “Rice paddies to rice paddies in three generations.” “Clogs to clogs in three generations.” The world over, observers have noted the all-too-frequent phenomenon that the wealth built by one generation seldom survives the two generations that follow it. In fact, many of us have observed first-hand, in varying degrees, how what is achieved by hard-working, ambitious founders is so often squandered by children and grandchildren who fail to exercise stewardship over what they have been given.
But such failures are not inevitable. Perhaps the most famous example in recent history is presented by contrasting the Vanderbilts and the Rockefellers. On the one hand, the great fortune assembled by Cornelius Vanderbilt through astute investments in railroads and shipping was largely gone by the time his grandchildren came onto the scene—despite his deathbed admonition to his son to “keep the money together.” Conversely, John D. Rockefeller, who amassed immense wealth during roughly the same period as Vanderbilt, including formation of the Standard Oil Company, put in place during his lifetime the legal, risk-management, and educational structures that equipped his heirs to not only maintain, but continue to build on what he had accomplished. Today, the Rockefeller family fortune is estimated at around $10.3 billion, despite giving away some $170 million annually to various philanthropic efforts.
Preparing the Next Generation
Especially now, at a time when an estimated $124 trillion in wealth is poised to move from one generation to the next within the next thirty years, it is more important than ever for those with significant estates to ensure not only that plans are in place for tax-efficient transfer of wealth to heirs and other beneficiaries, but also that those recipients have the tools and preparation necessary to position them to manage and propagate the financial legacy into the future.
Communication
In an interview, David Rockefeller, the last surviving grandchild of John D. Rockefeller, credited a strong tradition of shared values that were intentionally passed from one generation to the next. Clearly, conversations with those who will inherit wealth should begin years before they actually assume the role. Indeed, children can begin learning the value of sharing with others in early childhood. As they mature, their values and causes that matter to them can become part of the family conversation, woven into the family’s core philanthropic principles. In this way, the concept of responsibility to future generations can become ingrained in those who will one day be the leaders and the decision-makers. It should be remembered that younger generations’ ethical priorities and values may include organizations and even concepts that may be unfamiliar to their elders. For this and other reasons, communication around family financial and philanthropic values must be a two-way process, as both the founders and the heirs listen to each other openly and with respect for contrasting views and priorities. Perhaps more than any other factor, a commitment to honest communication can build a lasting foundation for a multigenerational legacy.
Education
Preparing the next generation for financial leadership also requires providing them with the knowledge needed for making good decisions. As wealth increases, the importance of issues like taxation, estate planning and conservation, risk mitigation, and investment strategy inevitably come to the fore. While it may not be necessary for heirs to become experts in these areas (and more on this below), it is important that they be acquainted with the basic principles involved in order to be able to take advantage of advice from trusted counselors. At a certain point, future leaders should also be educated about the use of trusts, donor-advised funds (DAFs), annual gifting, and other matters.
The right help
Though fortunes may be established by hard work and visionary effort, a different skill set is often called for to achieve the multi-generational propagation of that fortune. In other words, the help of professional, experienced, and fiduciary advisors can greatly enhance the likelihood that what is built by the founders is not squandered by their heirs. Founders who obtain such guidance and advice are much more likely to pass along significant wealth to their heirs than those who “go it alone.” The wealth management team, then, should include not only a qualified wealth advisor, but also the legal, tax, and risk management experts who can help plan ahead for the emerging issues that can adversely affect wealth-building efforts.
Governance
Related to the importance of professional, fiduciary guidance is the establishment of structures for governance of the financial legacy. As wealth grows, it becomes more important that processes for decision-making, investment management, and intergenerational transfer of assets and other benefits are drafted and given the proper legal attributes. “Having it in writing” typically reduces conflicts, creates clarity, aligns values and intentions, and aids the sustainability of the financial and philanthropic estate.
Your Rothschild wealth advisor can be an invaluable resource as you explore your goals for establishing a multigenerational legacy or refine a plan that is already in place. For more information or to ask a question, please contact us.
Rothschild Wealth, LLC, an SEC-registered investment adviser, and Rothschild Investment, LLC, an SEC-registered investment adviser and broker-dealer, member FINRA/SIPC, are affiliates and are collectively referred to as Rothschild Wealth Partners™. Founded in 1908. Information is provided for informational purposes only, is not investment advice, and should not be relied upon as a recommendation. Past performance is not indicative of future results.
