A Case Study of The Rockerfellers

Intergenerational wealth and legacy planning

The Rockefeller name is synonymous with wealth and largesse. The Rockefellers were worried that their future generations may not be able to enjoy the lifestyle or influence the family had since the early 1900s. Hence, they began a vigorous effort to bolster their fortune, currently estimated to be at US$300–340 billion. John Davison Rockefeller Sr. (“John Sr”), the founder of Standard Oil, is the family patriarch and America’s first billionaire. He was an accounting clerk, but became one of the richest men in the world by turning a US$4,000 investment into a large stake in his flagship company, Standard Oil. This grew into a formidable monopoly, which refined almost 90 percent of America's oil between 1870 and 1911. By 1914, John Sr. was worth more than US$1 billion. In 1917, he gave his only son, John D. Rockefeller Jr., US$460 million.

In 1934, John Jr. established trusts for his daughter and five sons, which consisted of oil company stocks and real estate holdings. These trusts still hold the bulk of the Rockefeller family fortune. Another set of trusts were set up in 1952 for John Jr.’s grandchildren, the fourth generation of the family. When the family members die, these trusts will be divided into new trusts for their children. For over 100 years, the largest private fortune in world history was passed on this way.

In 1985 and 1989, the family withdrew some of its core wealth. This money was tied to real estate, and the family mortgaged and sold its interests in the 12 original buildings in Rockefeller Centre, allowing the family to cash out US$2 billion. This money was then put into trusts, which hold most of the family wealth and grow the interest income that some family members collect each year.

In ‘The Rockefellers: An American Dynasty’, it is stated that at the age of 21, each Rockefeller begins receiving US$10,000 per year from a trust created by John Sr. At the age of 24, the annual income doubles to US$20,000. It increases by US$10,000 per year until the age of 30, at which time a Rockefeller heir can receive US$130,000 per year. At the age of 30, or upon getting married, a Rockefeller may begin receiving all income generated from the trust, generally between US$400,000 and US$600,000 depending on the market conditions. Wealthy families like the Rockefellers sustained their affluence by having private assets managed professionally.

In 1882, John D. Rockefeller Sr. established an office of professionals to organise his complex business operations and manage his family’s growing investment needs3. With his assets consolidated under the Standard Oil Trust, this office was mandated to manage his wealth as an investment portfolio instead of a singular business entity. This was generally considered to be the ‘Family Office’.

Through the establishment of trusts, the majority of which still exist today, the Rockefeller family’s assets were organized and consolidated over a very long time, proving to be a useful design for intergenerational wealth and long-term security.

Ensuring intergenerational wealth through the establishment of trusts

It is often said that wealth tends not to last more than three generations. About seven in ten wealthy families lose their fortune by the second generation, according to a study of more than 3,200 HNW families by The Williams Group wealth consultancy. This is attributed to the ‘divisor’ effect from the growing number of heirs, which makes it difficult for idle wealth to perpetuate. As each generation creates more people to lay claim to the family assets, any beneficial effects of compounded money are lost, if there is no strategic plan to manage the wealth.

The Rockefeller family is a prime example of successful wealth transfer through the generations, and it is because of the trusts each generation creates that results in a flourishing legacy.

The primary objectives of the Rockefeller family:

1.???? Ensuring Intergenerational Wealth and Influence: The Rockefeller family was concerned about their future generations maintaining the lifestyle and influence that the family had since the early 1900s. To address this, they undertook efforts to fortify their fortune, which included establishing trusts. These trusts were designed to manage and consolidate the family's wealth over a long period, ensuring intergenerational wealth and long-term security. The trusts, which exist to this day, effectively organise the family's assets and provide a steady income to the family members.

2.???? Professional Management of Wealth: The Rockefeller family recognised the importance of professionally managing their vast wealth. In 1882, John D. Rockefeller Sr. set up an office of professionals to organise his complex business operations and manage the family's growing investment needs. This approach was innovative at the time and served as the precursor to the modern 'Family Office.' This office was responsible for managing Rockefeller's wealth as an investment portfolio, rather than as individual business entities, thus ensuring the efficient and strategic growth and preservation of the family's assets.

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Sources:

1. “Rockefeller Family Tries to Keep a Vast Fortune from Dissipating”, The New York Times, 16 February 1992.
2. Horowitz, David and Collier, Peter. The Rockefellers: An American Dynasty. Holt, Rinehart and Winston, 1976. Print.
3. “SPECIAL FEATURES: Family Offices – A History and Definition”, https://www.tharawat-magazine.com/rise-family-office/family-offices-history-definition/#gs.dsX9DdM, 9 May 2016.
4. “Most rich families will lose it all”, New York Post, 24 April 2017.