Dynastic Gamesmanship: Did David Rockefeller's Crafty Trust Work Leave the IRS Holding the Bag?

One of the legendary fortunes just moved one generation farther from the source. The next few years will determine whether dynastic planning has hit its ultimate limit or truly run forever.

The Rockefeller family helped write the book on long-term estate planning eight decades ago. Now we’ll see how the latest chapters build on the base built in the 1930s.

David Rockefeller was the last grandchild of family patriarch John D. Rockefeller and a full participant in the trust structure the world’s first billionaire left behind.

When the family money rolled into the first trusts, even $1.4 billion split less than 20 ways could fund lavish lifestyles in perpetuity.

But the world has changed a little since then. Luckily the family’s advisors have kept up with the times.

Built for 1930s perfection

First and foremost, the family trustees did extremely well for David and his siblings.

Barring completely incomprehensible errors, Rockefeller money passed through this generation completely outside the estate tax system.

They enjoyed billions in tax-free income over their lifetimes while the principal compounds.

Speaking of “compounds,” the ancestral homestead sprawls across 250 secluded Westchester acres -- and since it’s technically owned by a preservation group, they’ll never have to sell it to cover an IRS bill.

And with one of the best family offices on the planet working hard to conserve the assets, their own estates pass on to their descendants with minimal tax drag.

They had a great model to build on. The first Rockefeller trusts passed the bulk of the patriarch’s money to his grandchildren and the great-grandchildren who were around when he set up the plan in 1934.

Using the trusts to bypass the estate tax at the time probably tripled the amount of money that went to the heirs as well as the income it provided -- at the time, the IRS would claw back as much as 70% of fortunes this size.

But while it was the biggest estate plan in history, it was only the best his advisors could concoct in the 1930s. And with David’s death, it needs to evolve to meet a looming existential crisis.

Back then, the trust code prevented the creation of beneficiaries who weren’t even born yet, which means that original layer of the family’s wealth will need to wind down when the last heir named in the documents dies.

The death of David at age 101 leaves only his great-niece Abby Milton O’Neill -- the patriarch’s oldest living great-grandchild -- keeping those trusts from terminating.

She turns 90 next year. The IRS is probably waiting for its long-delayed shot at the assets.

If there’s any principal left, the heirs will pay a tax bill then.

But that’s a pretty big “if.”

Welcome to the future

The Rockefellers haven’t all spent their time pursuing hobbies and supporting favorite causes.

The family financial wizards started working in the early 1980s to squeeze a little more income out of the assets to feed a rapidly expanding family tree.

By that point, there were multiple layers of trusts supporting five generations of heirs, with the youngest beneficiaries really only able to claim a 3% genetic bond to the patriarch.

Overall, the fragmented system kept everyone comfortable. But major charitable donations, houses and other big-ticket purchases were becoming a drag.

So the family office mortgaged Rockefeller Center and spun out a stake of the property to raise cash on the otherwise deeply illiquid real estate.

In an era when most trusts parked the money in Treasury paper and passed on the coupons, the Rockefellers were earning 10% -- enough to fund a lot of philanthropy and support a lot of family.

That cash poured back into increasingly sophisticated investment structures, with the management eventually turning into a profit center in its own right.

The Rockefellers are practically unique for opening their family investment infrastructure up to other wealthy people, charging them an annual fee for the privilege.

Over and over, that’s been the pattern. If it’s worthwhile for the family office to do something -- insuring family art collections and planes, administrating the trusts, capturing venture capital opportunities -- it’s probably cheaper to take in outside clients and share the cost.

As long as all the now-modest late-generation trusts flow into that central platform, they get the advantages of scale even though the individual account sizes keep shrinking as the family fortune divides.

More insular approaches would have dwindled beyond economic viability after 80 years once the assets start stretching across 100 or more beneficiaries.

The Rockefeller approach keeps rolling the wealth across an ever-widening group of descendants while leaving the overall pool of assets relatively intact.

Sooner or later, of course, their collective income needs are going to need to scale back or start draining the principal.

As it is, I can’t help but notice that most of David Rockefeller’s grandchildren have jobs. They’re prestigious, exciting, undoubtedly fulfilling jobs, but they still bring in cash over and above the checks the trusts write.

David may go down in history as the last Rockefeller to be personally worth more than $1 billion in his own right. After all, he ran Chase Manhattan Bank, the biggest depositary institution on the planet.

He was also the only Rockefeller to sign the “giving pledge” vowing to give away at least half his assets after death. That club only targets billionaires, which makes me wonder if other family members no longer qualify.

At least $500 million in philanthropic bequests have already been assigned to museums, schools, family foundations and other organizations.

The rest of his estimated $3.3 billion is probably still tied up in his shares of the family trusts or transferred to the best new ones the Rockefeller office could create.

Rockefeller money is rolling from past to future while taking care of the present, without creating a taxable event in between.

But David’s advisors have a distinct advantage over the now-long-dead visionaries who first created the family trust system.

The trust rules have evolved over the last eight decades. For one thing, depending on the state, a trust created now for David’s own grandchildren and beyond may never need to terminate.

It could theoretically run forever, eternally beyond IRS reach if run correctly.

By that point, there might be thousands of Rockefeller descendants, each clinging to a sliver of advantage that their drop of famous blood and fractional share of those trusts provides.

It might not be much of an edge, but as long as the family office remains intact, they’ll get as much of that edge as conditions allow.

All the office needs now is a mechanism for reminding them who they are and what that family name means beyond a regular check.

If that happens, the legacy of John D. Rockefeller can truly live forever, while grandchildren, great-grandchildren and future generations come and go.


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