Most people remember the Vanderbilts as one of the wealthiest families in our nation’s history – creating immense wealth to be passed on for future generations to prosper. Right? Wrong.
What Cornelius Vanderbilt got right was creating a shipping empire that began with nothing and amassed a multi-billion dollar fortune.
What he got wrong was planning for the future of his fortune.
There are three stages in everyone’s financial lives from the accumulation phase to the protection payout phase and, finally, to the legacy phase. We spend our lives working tirelessly to provide for our loved ones, then we work to preserve that wealth believing that what is important is what we leave behind when we are gone.
This is only half of it.
Just ask Cornelius Vanderbilt. Seventy years later and his fortune has been squandered by the same family he was seeking to provide for.
You don’t have the fortune of a Vanderbilt. Few do. For some it is about money, but we should all begin to think of wealth, and for that matter estate planning, in a different way. We should all begin by asking ourselves: What is true wealth?
When I ask my clients what they think the most important thing to pass on to their beneficiaries is, they say financial assets dead last. But many, if not all, estate plans start and stop with a dollar amount.
If it’s just the money, then you should rejoice. This summer the D.C. Council approved a package of extensive changes to the tax code including raising the state estate tax exemption from $1 million to $5.25 million and bringing it in line with the federal tax code.
This may sound like an opportunity, and it is for the financial industry, which is trying to convince you to buy their last engineered product designed to pass as much of your wealth onto your children a legally possible. That’s a great instinct but too often people are persuaded by financial industry sales pitches that offer no advice other than how to make their estate plans as tax–efficient as possible.
Remember the Vanderbilts? You should.
Cornelius’ estate plan was flawless, but what he forgot was that, with money comes great responsibility. When it is handed to you on a silver (or gold) platter, your children, those same beneficiaries, often lose out.
It is important to sit down and create an estate plan, but it is just as important to sit down with your children and teach them your values, the meaning of hard work and the importance of charity.
There are a number of tried and true ways to do that, including family foundations to continue charity work, and leaving your money in a fashion that encourages entrepreneurship, such as a family “bank.” That’s what has sustained Europe’s Rothschild family of bankers for two centuries.
It’s the job of a financial planner to look at your hard earned dollars and make sure you can sleep at night knowing that you left your money in competent hands.
There’re many ways to set up an estate plan. I can show you how to plan for the next generation’s future while accomplishing your own goals. I can tell you how to make the most of the new tax rules in Washington, and how to ensure your children get the most of what you leave behind.
But the most important advice I can give my clients is to think about the good they want their money to do instead of the ease of luxury it might provide. I suggest that they ask themselves what they should do today to make sure their fortune and their legacy last longer than 70 years.
John E. Girouard, CFP, CHFC, CLU, CFS, is the author of “Take Back Your Money” and “The Ten Truths of Wealth Creation,” a registered principal of Cambridge Investment Research and an Investment Advisor Representative of Capital Investment Advisors, in Bethesda, Md.