The Vanderbilt Curse: 8 Lessons for Preserving Your Family’s Wealth

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute Retirement Solution

One of the greatest transfers of wealth in history is about to happen… flowing from our current oldest generation to the next.

And if the history of inherited wealth is any indication of what to expect, one-third of the recipients will blow all of it.

An acquaintance of mine inherited a railroad (literally) in his 30s. In his 50s, he was living in a one-bedroom apartment over an abandoned gas station and recovering from alcoholism.

Stories of squandered inherited wealth and ruined lives are endless, but the best (or maybe worst) example of how bad the free money scenario can be is the Vanderbilt family.

In 1877, Cornelius “Commodore” Vanderbilt left his heirs $100 million, more money than the U.S. Treasury had at the time. That’s about $2.2 trillion in today’s dollars.

His son William turned the fortune into $200 million in just eight years, equal to a tidy $4.5 trillion today. And that was the beginning of the end of the family’s wealth.

Forty-eight years after the Commodore’s death, one of his children died penniless. Some of his heirs developed substance abuse problems.

They gave away money by the barrel, built multiple crazy, lavish homes, and threw parties described as “fairy-tale-like.”

And by 1947, the 10 mansions the family owned in New York City were all torn down, their contents auctioned off.

At a 1973 family reunion of the Commodore’s 120 descendants, not one was even a millionaire.

That means roughly $4.57 trillion in today’s money was gone in less than 100 years.

Cornelius’ children and heirs had squandered something like $4 billion per year.

Obviously, the Vanderbilt family’s fortune was much bigger than most, but the outcome was no different than many of the stories you hear today.

The fact is, most people are not prepared to handle large amounts of money, especially when it falls out of the sky.

If you’re planning to leave a big chunk of cash or assets to your heirs, follow these guidelines to make sure it doesn’t get the Vanderbilt treatment.

  • Structure the transfer from one generation to the next using trusts. This allows you to control the flow of money and limit taxes, too.
  • Train your heirs on the responsibilities of managing great amounts of money before they take possession.
  • Require a “do nothing” period after you pass, and require your heirs to meet and confer with financial experts you’ve chosen to force a period of learning, reflection and (hopefully) clearheadedness.
  • Fund their retirement(s) first.
  • Require them to pay off any high-cost debt.
  • Teach them to never make financial promises to anyone.
  • Keep the big money separate from day-to-day cash. It tends to disappear more quickly if it’s all in one place.
  • Spread it across many bank accounts to maximize the FDIC’s $250,000 coverage limit.

Unless you wouldn’t mind your heirs’ first stops – on the way home from your funeral – being a real estate agent’s office, a jewelry store and an imported car dealership, start thinking about putting some checks in the flow of cash.

Believe me, you’ll be doing them a favor.

Good investing,