A tale of two families and the wealth they (did not) pass on to their children

We spoke about some well-executed and some not-so-well-executed estate plans at the firm’s recent seminar on famous and infamous estates. Two of the issues we discussed were transfers of business interests and the importance of planning for multiple generations. Here are two examples we did not get a chance to discuss at our seminar, but which are relevant:

First, Bloomberg recently reported that Aerin and Jane Lauder, the granddaughters of the founder of Estee Lauder (the founder was named Estee Lauder, of course), became two of the youngest billionaires in the world this year; due to the appreciation of their Estee Lauder stock. Aerin and Jane are each in their third decade of work at Estee Lauder and each own some stock shares individually while other shares are held in trust for their benefit. Through smart planning, it looks like the family has managed to avoid the “shirtsleeve to shirtsleeve in three generations” story that so many families fall into. The patriarch’s direct descendants appear to have learned enough about the family business (and about the values that it takes to guide the business) to maintain a promising fiscal outlook going into the fourth generation of wealth.

This is a significant achievement. Consider:

Cornelius Vanderbilt borrowed $100 from his mother and turned that $100 into a railroad empire worth over $100 million dollars at the time of his death in 1877. $100 million in 1877 is worth approximately $185 billion in today’s dollars. For a little perspective, Warren Buffet’s net worth is around $64 billion and Sam Walton’s is around $65 billion in todays dollars.

Vanderbilt’s heirs spent the money like Montgomery Brewster. Six years after Cornelius Vanderbilt’s death, his heirs built the first of ten Vanderbilt mansions on Fifth Avenue in New York. Cornelius’ heirs built similarly opulent “cottages” in Newport, RI and one of them, George Washington Vanderbilt II, built the fantastic Biltmore Estate in Asheville, NC – the largest privately owned house in the United States (250 rooms and 178,926 square feet).

Cornelius Vanderbuilt’s heirs were prominent horse breeders, yacht racers, auto racers, and film producers (and alcoholics). Many of the heirs married multiple times. As a result of these career and life choices, by 1920 one of Cornelius’ descendants died penniless, by 1960 the last of the Fifth Avenue mansions was torn down, and by 1977 a survey of family members at a reunion at Vanderbilt University turned up 120 Vanderbilts and not one millionaire.

Planning for the second and third generations is important for any business, no matter how big or small. A proper plan often involves instilling the patriarch’s work ethic in children and grandchildren, communicating with each generation about the direction of the business, properly assessing and preparing for risk, and making informed legal decisions.