Cornelius Vanderbilt was the richest man in America. His son doubled his fortune. Yet even his wealthiest descendant of our generation, Anderson Cooper, received no inheritance. What happened?
In 1810, future magnate “Commodore” Vanderbilt borrowed $100 from his mother and struck out as an entrepreneur. He found success in steamboats, then built an empire in railroads. By the time of his death, Vanderbilt’s net worth exceeded that of the US Treasury! His son William Henry Vanderbilt inherited most of the family fortune and doubled it by the time of his death.
But that fateful third generation hit.
The money was split between two of the Commodore’s grandsons: Cornelius Vanderbilt II and William Kissam Vanderbilt. The latter noted, “Inherited wealth is a real handicap to happiness… It has left me with nothing to hope for, with nothing definite to seek or strive for.”
Houses, parties, sport, philanthropy — these came to dominate all heirs’ interests. And as railroads declined insignificance, there was no one left to marshal the Vanderbilts’ considerable resources and connections to secure a bright future for the family’s railroad-based fortune.
In the mid-20th century, the great Vanderbilt houses were torn down, and while their name lives on at Vanderbilt University, the influence and prominence of the family itself have fallen out of sight almost entirely.
I’ve not dealt with family money near the magnitude of the Vanderbilts — their fortune would be greatest in the world today, after all. But I have spent time with those with substantial family money. In my experience, there are two broad ways of setting priorities within the family legacy.
Wealthy Families: A brilliant plan is structured to transfer the family’s fortune in the financially optimal way. Estate taxes, private business interests, capital gains — all in the plan. The kids are filthy rich. So are the grandkids. But the soul of the family erodes, and so does the family fortune.
Wealthy Families: These families are not passing on money, they’re passing on family culture. The family fortune is one tool entrusted to the family, and so they do want a great financial plan. But the fundamental legacy they’ve built is an institution, a culture — a family.
The number one financial error people make is to mistake money for wealth.