The Rockefeller Estate Planning Example | The Finity Law Firm (2024)

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What was the Rockefeller method of estate planning? ›

For example, the Rockefellers used a series of irrevocable trusts that helped pass down wealth to future generations. These Trusts both fund and remain funded through premium life insurance policies, and include strict stipulations that protect the family from the risk of irresponsible behavior.

As outlined in the graphic below, the Rockefellers' wealth increased from $520M to $3.3B in three generations while the Vanderbilts' wealth decreased from $3B to $1.5M. The stark contrast can be attributed to the Rockefeller family's stringent view on using life insurance in their estate planning.

Created Irrevocable Trusts

The Rockefellers use irrevocable trusts, which heirs cannot easily change, to ensure that money gets passed on as it should, according to Barrons.

The Rockefellers: Employed a systematic approach to wealth management and succession planning, using trusts and whole life insurance to ensure wealth was not only preserved but also grown across generations. This strategic foresight has allowed them to remain influential and wealthy even today.

Horizontal Integration: Rockefeller employed a strategy called horizontal integration, which involved consolidating competing oil refineries into a single company. By acquiring and merging these companies, he eliminated competition and gained control over a significant portion of the industry.

To grow the business, Rockefeller took an approach similar to other business magnets at the time: remove competitors at all costs. Standard Oil's early refinery. By 1872, only a few years into business, Rockefeller used a series of acquisitions to become the largest refinery in the world.

But within just 50 years of Cornelius's death, the Vanderbilt family fortune was completely gone. Even if you're not wealthy beyond imagination, like the Vanderbilts were, there's a lot to learn from their story of boom and bust.

In the 1996 book The Wealthy 100, authors Michael Klepper and Robert Gunther placed John D. Rockefeller atop the list of the richest Americans in history, followed by Cornelius Vanderbilt and John Jacob Astor.

The Vanderbilt family began to lose their wealth when the sons of William Henry failed to manage the company business. Their lack of attention to changing transportation needs caused their firms to lose market share. Their extravagant lifestyles depleted the wealth accumulated by their father and grandfather.

The most prominent of Rockefeller's progeny were Standard of New Jersey, which became Esso and then Exxon; and Standard of New York, later Mobil. In 1999, these two combined to form Exxon Mobil, the largest energy company in the world. Following BP's merger with Amoco, it established the new category of “supermajor.”

Does the Rockefeller family still exist? ›

Now entering its seventh generation with as many as 170 heirs, the Rockefeller family has maintained substantial wealth — they had an $11 billion fortune in 2016, according to Forbes.

By leveraging life insurance to fund trusts, they established a perpetual cycle of wealth creation, ensuring that their family's legacy endures and thrives across generations.

They were required to give 10 percent of their income to charity, to save 10 percent, and to account for all of the rest. They had to balance their account books ever month and to be able to tell what happened to every penny they earned.

They are administered by a trust committee that oversees the fortune. Management of this fortune today also rests with professional money managers who oversee the principal holding company, Rockefeller Financial Services, which controls all the family's investments.

The waterfall concept is an estate planning strategy that uses whole-life insurance contracts to efficiently transfer wealth between generations. It can only be used to transfer wealth from an older generation to a younger one, such as in the case of a grandparent giving to their child or grandchild.

How does it work? The transferor purchases a tax-exempt permanent life insurance policy on the life of a child and contributes to it, typically for three to five years. The policy grows on a tax- deferred basis and is eventually transferred to the child of the transferor for no consideration.

Standard Oil gained a monopoly in the oil industry by buying rival refineries and developing companies for distributing and marketing its products around the globe.

The Rockefellers' wealth strategy in using life insurance employ what's known as the “waterfall method.”⁴ As family members who are the beneficiaries of the trusts passes away, their life insurance death benefits help pay off any loans on the policies and kick-start new ones for the next generation.

With that money, he created two of the world's greatest research universities, helped pull the American South out of chronic poverty, educated legions of African Americans, jumpstarted medical research, and dramatically improved health around the globe.