Estate Planning Insights From America’s Wealthiest Families

21 May 2024 Estate Planning Insights From America’s Wealthiest Families

Some of America’s most storied dynasties have been able to preserve and enhance their wealth across generations, while others have seen their fortunes depleted amid mismanagement and oversight.

By examining the successes and missteps of some of America’s ultra-wealthy, we’ll uncover valuable lessons in wealth preservation that can be applied to your own estate planning efforts.

Success stories

Several estate planning tools stand out for their effectiveness in preserving and growing intergenerational wealth among America’s elite.

Spousal Lifetime Access Trusts allow assets to be moved out of the estate while still providing for the spouse, blending flexibility with tax efficiency. Charitable Remainder Trusts serve those interested in philanthropy, offering income streams and tax benefits, with the remainder going to charity. Beneficiary Defective Inheritor’s Trusts and Grantor Retained Annuity Trusts are favored for transferring wealth with reduced taxes, enhancing control over and the growth of assets passed to heirs.

Another strategy is the “buy, borrow, die” method, which leverages appreciating assets such as real estate stocks, art, and collectibles as collateral for loans. The loan proceeds are not taxable income, and no capital gains tax is incurred by borrowing instead of selling. Upon inheritance, beneficiaries use the assets to settle any outstanding loans and benefit from a stepped-up cost basis, potentially reducing or eliminating capital gains tax on these assets when sold.

Successful estate planning is typically a well-guarded secret. This discretion is not accidental but by design, as effective plans avert the public disputes that often accompany less carefully crafted strategies. By using trusts and other legal tools, families maintain the confidentiality of their wealth management strategies and estates, keeping them out of probate and the public domain. While we don’t know all the financial secrets of the wealthy, we do know some of the wealth-preservation tools employed by dynasties like the Rockefeller’s, Hearst’s, and Getty’s.

The Rockefeller’s

The Rockefeller saga began with Standard Oil in 1870. Under Rockefeller’s guidance, the company dominated 90% of U.S. oil refineries and pipelines, earning him the title of the world’s richest man and marking him as one of the first billionaires. With a fortune that would be valued at over $600 billion today, the Rockefellers are one of the most storied families in American history.

The cornerstone of the Rockefellers’ enduring wealth has been their sophisticated use of estate planning techniques, notably their two major trusts: the 1934 Family Trust and the 1952 Dynasty Trust. These trusts held interests in the descendants of Standard Oil and diversified into real estate and other investments. The holdings became so extensive that the family created Rockefeller Financial Services to professionally manage the assets through separate arms dedicated to investments, venture capital, family businesses, liability insurance, and risk management. This multi-pronged approach allowed the family to maintain their wealth across varied economic climates.

A critical component of their planning involved the use of irrevocable trusts supported by life insurance. Sizable permanent life insurance policies are purchased for each family member, which allows them to borrow against the cash value of the policies tax-free during their lifetimes. Upon a family member’s death, the life insurance payout is used to clear any outstanding loans and replenish the policy’s value, with excess funds flowing back into the family trust.

The integrated management framework they created has ensured that their wealth – currently estimated around $8.4 billion – continues to benefit dozens of heirs over six generations.

The Hearst’s

The Hearst family legacy began with William Randolph Hearst, who left behind a trust and estate in 1951 valued around $400 million in today’s dollars.

Hearst chose not to pass his fortune directly to his children and grandchildren. Instead, he formed a board of 13 trustees – comprised of five family members and eight current or former Hearst Corporation executives – to manage the trust. This trust not only owns and oversees Hearst Corporation but also makes annual distributions to Hearst’s descendants. The structure of the trust, along with its management and distribution mechanisms, is shrouded in secrecy, adding a layer of protection for the family’s assets. Despite individual heirs encountering legal and financial issues, the Hearst trust has continued to provide for them effectively, safeguarding the family fortune from potential losses.

Today, Hearst Corporation has grown into a massive conglomerate, generating over $10 billion in annual revenue. The company is involved in over 360 different businesses, and the trust continues to distribute dividends to more than 65 members of the Hearst family.

The Getty’s

The Getty family’s fortune originated with J. Paul Getty, who amassed wealth through his oil enterprises. He famously bequeathed his art collection, along with other properties, to a museum trust. This move not only exempted these assets from estate taxes but also led to the establishment of The Getty Center, now one of America’s most frequented art museums. Further tax efficiency was achieved by domiciling the family trust in Nevada, avoiding California’s state income tax on the trust’s income.

However, the Getty estate plan, while effective in minimizing taxes, has not been without complications. The Getty heirs have faced a series of disputes that have persisted for nearly as long as the trusts have existed. These ongoing conflicts highlight some of the complexities and challenges that can arise even from well-intentioned estate planning efforts, underscoring the need for continuous management and adjustments as circumstances change.

Cautionary tales

Despite the successes of families like the Rockefellers, many families fail to preserve their fortune beyond a couple of generations. In fact, there are many more cautionary tales than success stories. According to Nasdaq, 70% of families lose their wealth by the second generation and a staggering 90% by the third.

By examining some high-profile estate failings, key lessons emerge about the importance of careful planning.

Jimi Hendrix: it’s never too early to have a plan

Jimi Hendrix, despite his fame and wealth, tragically passed away at the age of 27 without any form of estate plan. As a result, his estate was distributed due to the laws of intestacy, and his $66 million estate was inherited solely by his father. Hendrix was close to his brother Leon, yet Leon received nothing when their father later passed away and left a will that excluded him. The control of Hendrix’s estate eventually passed to his step-sister.

Lesson: if you have assets, it’s never too early to have an estate plan, especially if you want to ensure that your loved ones are taken care of in the manner you intend.

Princess Diana, Michael Jackson, and Leona Helmsley: don’t overlook due diligence

Princess Diana, Michael Jackson, and Leona Helmsley each had estate plans but fell short in their execution, highlighting the importance of due diligence in estate planning.

Princess Diana had a “letter of wishes” that her sons and godchildren would each inherit a substantial portion of her personal possessions. However, the letter of wishes was not properly drafted or enforceable, so her godchildren only received small trinkets despite Diana’s intentions.

Michael Jackson established a trust but failed to transfer all his assets into the trust’s name. This oversight resulted in a highly publicized probate court battle among his relatives.

Leona Helmsley made headlines for her unconventional estate decisions when she disinherited two grandchildren and left $12 million to her dog. The excluded grandchildren successfully challenged Helmsley’s will and trust, questioning her mental fitness.

Lesson: careful planning and follow-up are necessary to ensure a plan functions as intended. If Diana had an attorney draft her letter of wishes, it likely would have been enforceable. If Jackson ensured all his assets were properly transferred into his trust, probate could have been avoided. And, individuals considering unusual or potentially controversial estate decisions, like Helmsley, should obtain a formal assessment of mental competence as it can preempt capacity challenges.

Doris Duke: select the most competent fiduciary

Virtually all estates require a fiduciary, such as an executor or trustee, to manage administration after the owner’s passing. A fiduciary is legally obligated to act in the best interests of the estate and its beneficiaries, prioritizing their financial well-being over personal gains.

Doris Duke, an heiress with an estate valued at approximately $1.3 billion, serves as a cautionary example of the pitfalls of selecting a fiduciary based on personal relationships rather than professional qualifications. Duke appointed her butler as executor and trustee of her estate, roles for which he lacked the necessary expertise. His management was so problematic that a judge eventually removed him from his role and created a board of trustees to oversee the estate.

Lesson: the role of a fiduciary encompasses a broad range of responsibilities. While loyalty and trust are important, these qualities alone do not guarantee the skills necessary for effective estate management. Especially in cases of complex assets, the fiduciary must possess a high level of expertise in financial and legal matters. Individuals should carefully evaluate potential fiduciaries for their qualifications and experience, noting that their closest friend may not necessarily be the best fit for the role.

Florence Joyner: ensure your family knows where to find important documents

Florence Griffith Joyner, the renowned Olympian, prepared a will but failed to inform anyone of its location. Her husband was unable to file the will within the 30 days required by state law, leading to litigation between her husband and her mother. Ultimately, the administration of her estate was handed over to a third party.

Lesson: it’s not enough to have estate planning documents; the relevant parties must know where they are. To prevent disputes and ensure the smooth execution of one’s final wishes, store copies of important documents in a secure location and let designated individuals know how to retrieve them when necessary.

The Vanderbilt’s: educate your family and discuss succession plans

Despite amassing one of the largest fortunes in American history during the late 19th century, the Vanderbilts experienced a significant decline in their financial legacy through mismanagement, extravagant spending, and personal vices such as gambling and alcoholism. By the mid-20th century, the once vast Vanderbilt fortune had largely evaporated, with some heirs living in poverty. Today, no Vanderbilt-founded companies remain under family control, and while some trusts continue to support various descendants, the wealth has dwindled dramatically.

The root of this decline was a glaring lack of communication and succession planning. The Vanderbilts failed to engage in open discussions about wealth management or educate their descendants on the responsibilities of wealth. The younger generations did not understand the family’s financial strategies or the founder’s intentions for the family enterprise, which left them ill-prepared to manage or preserve their inheritance.

Lesson: open conversations about money, coupled with strategic planning and education, are essential to equip future generations with the knowledge and skills needed to manage and grow their inheritance effectively.

Whitney Houston & Heath Ledger: keep your plan updated

Whitney Houston and Heath Ledger both highlight the need to update estate plans in response to significant life changes.

Houston had an estate plan that primarily benefitted her daughter, Bobbi Kristina, with disbursements set for specific ages and milestones. However, the plan had not been updated in nearly 20 years. At the time of Houston’s death, Bobbi was struggling with substance abuse, and her father, Houston’s ex-husband Bobby Brown, sought a conservatorship over her. Tragically, Bobbi Kristina passed away only three years after her mother, and disputes over the estate escalated, affecting even the proceedings at Bobbi’s funeral.

Heath Ledger’s will left his assets to his parents and sister, but it was created before his daughter’s birth. His failure to update the will after her birth led to public disputes among family members over the rightful distribution of his assets.

Lesson: it’s imperative to review and update your estate plan regularly, especially after life changes such as births, adoptions, marriages, divorces, or deaths. Keeping your estate plan current ensures that your intentions are clear and can be properly executed without unnecessary conflict or legal complications.

The importance of professional guidance

The stories discussed here offer a glimpse into the complex world of estate planning and wealth management. However, this overview is not exhaustive. Each family’s situation is unique, requiring tailored strategies that align with specific financial goals and family dynamics.

To ensure your wealth preservation efforts are successful, it’s crucial to engage with professional advisors. Seasoned experts in estate law, financial planning, and tax strategies can help minimize risks and enhance the likelihood that your estate planning efforts will withstand the test of time. For more tailored guidance, please contact our office.

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