Building Wealth Like the Rockefellers

Sep 18, 2023

If you missed the podcast we did on this topic and would rather learn about it in the car or on your headphones while taking a walk, CLICK HERE to watch the video on YouTube, or you can CLICK HERE to listen and subscribe on iTunes. Lastly, HERE is the link for the Spotify recording.

You may have seen people on social media talking about building generational wealth, and we’re not talking about a little bit of money here. We’re talking about millions upon millions of dollars, resulting in a legacy for generations to come.

The Instagram reels and Tiktok videos run through the strategies too quickly, leaving out a lot of the details involving trusts, trustees, banks, and life insurance and leave their audience wondering how, exactly, does any of this work?

I’ll get into that, but let’s first start by talking about how income and assets are divided into three buckets…

First is our consumption bucket that entails everything we need to maintain our lifestyle. This includes money for our mortgage, groceries, clothing, and our Netflix subscription are just a handful of many items that fall into this bucket.

Next is our emergency bucket which includes not only our emergency savings fund, but also our insurance plans to pay us cash if we become sick, disabled, or prematurely pass away.

Lastly, there is our legacy bucket, which consists of the excess wealth that we are likely to never spend in our lifetime.

When thinking about building real, legacy-defining generational wealth, it’s this third bucket we want to focus on… and what we’re doing is using a portion of that excess wealth to implement advanced financial planning, similar to what prominent families like the Rockefellers have done in the past…

…and if you’re wondering, the answer is no; your family does NOT have to be nearly as wealthy as the Rockefellers to be a candidate for this type of strategy.

Opinions will vary on what percentage of one’s excess wealth should be deployed for planning such as this. For our purposes we are going to consider a very reasonable 20%.

Now, let’s consider a couple, age 65, with $5 million of excess wealth in their portfolio, defined as “money they’ll likely never use during their lives,” and go through the strategy, step-by-step.

Step # 1 – Trust:

With the help of one of our trusted attorneys, the couple will need to draft a trust, which will need to be irrevocable and be drafted to comply with both federal and state tax laws. This trust is going to be the vehicle by which wealth is accumulated and transferred to future generations.

Step # 2 – Life Insurance:

The second step in the process is going to be buying a permanent life insurance policy owned by the trust with the trust named as the beneficiary. Stay with me here… the reason we want the trust to be the owner AND beneficiary is because we want this money to last forever, and since a trust can’t technically die, we want the ownership of the money to be in the hands of the trust, not a person.

In addition, it’s crucial to work alongside an insurance advisor with deep knowledge and experience in this area of advanced legacy planning. Both product (type of insurance) and insurance carrier selection are extremely important. For instance, if the policy lapses before both spouses die, or the insurance carrier goes belly-up, all this planning will have been for nothing.

In our example, the couple utilizes $1 million of their excess wealth to purchase $2.5 million worth of a permanent life insurance death benefit, guaranteed until age 120, which is then payable upon the death of the second spouse. This is known in the insurance business as a survivorship policy, or sometimes is called a last-to-die policy.

Step # 3 – Life Insurance into the Future:

Alright, so the last step is where the magic happens, and the true compounding effect of this planning comes into play.

After both spouses pass away (in our example, we’ll say the 2nd spouse dies at age 85), the life insurance death benefit proceeds are paid into the trust. Our trust then stipulates that the trustee (i.e., think of this person as trust’s “manager” who could be a living person or a corporation) must use some of the proceeds to buy permanent life insurance on the trust’s beneficiaries. Who are the beneficiaries of the trust? Well… in this example, they would be our deceased couple’s children and grandchildren.

Now… this is where the attorney can get creative. For instance, within the trust they could draft a requirement that a certain amount of the trust proceeds (in our example, we’re using $1 million) be used to buy permanent life insurance on the trust beneficiaries (see below) in order for those beneficiaries to have access to the rest of the trust’s assets. This ensures that the life insurance will be purchased and that this planning will perpetuate generation after generation.

  • Child A and Spouse (ages 65) – $395k spent to buy $1 million
  • Child B and Spouse (ages 60) – $225k spent to buy $1 million
  • Grandchild A and Spouse (ages 45) – $120k to buy $1 million
  • Grandchild Aa and Spouse (ages 40) – $100k spent to buy $1 million
  • Grandchild B and Spouse (ages 35) – $85k spent to buy $1 million
  • Grandchild Bb and Spouse (ages 30) – $75k spent to buy $1 million

If you add up all the money spent above on life insurance premiums, you’ll find that we utilized a total of $1 million in premiums to purchase a total of $6 million of in life insurance death benefit.

With this strategy, the original $1 million of excess wealth has now created $6 million dollars of family wealth, essentially tax-free because it’s inside of an irrevocable trust.

Wait a minute… how much was the total initial death benefit on the first life insurance policy? Ahhh yes, $2.5 milion! So we spent $1 million on the new policies (above), but the family still has access to the remaining $1.5 million of life insurance, plus any of the other assets that were left behind by their parents or grandparents.

So technically, the family still receives an inheritance now via the $1.5 million in tax-free life insurance proceeds, plus any hard assets that are sold (cars, homes, etc.), and the $1 million in premiums paid for $6 million in life insurance now guarantees the family’s estate will continue to grow massively (and by the way, it grows tax-free!), as each future beneficiary passes away.

If this is making sense, you can clearly see how after several generations a family’s wealth could expand into the hundreds of millions of dollars over time thru the proper execution of a strategy like this.

Oh, and yes… this is precisely what the Rockefellers did… and the Vanderbilts didn’t do (read here)!

In the end, it should go without saying that this strategy isn’t for everyone. It does require a certain level of excess wealth (and it doesn’t have to be $5 million, but certainly a nice chunk of money).

So, if you’re interested in getting more information on a Legacy Plan like the one the Rockefeller’s implemented, please reach out to us so that we can have a confidential conversation about how it might work for you and your family.

As always, and even if a “Rockefeller Plan” doesn’t make sense for you, please reach out if you’d like a 2nd opinion on your retirement plan, estate plan, and investment portfolio, CLICK HERE to take the first steps to answer a few questions and get an intro call set up on our calendar.

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