The fact that family wealth rarely, if ever, survives through more than three generation is a belief that spans the globe and almost all of recorded history. As far back as 2,000 years ago, Chinese philosophy was that “Wealth never survives three generations.” Medieval England put it this way: “Clogs to clogs in three generations,” while the Spanish put it even more succinctly in the 1500’s: “First generation, Trader; second generation, Gentleman; third generation, Beggar.”
Here in the US, the expression “Shirtsleeves to shirtsleeves in three generations” was a commonly-held belief in the 1800s. And statistics seem to support the theory.
According to Vic Preisser, co-author of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, “advisors concentrate on preparing assets for heirs, but lack the tools and training to prepare heirs for assets.” The results of this shortfall include:
- 70% of all families fail to sustain their family wealth across multiple generations
- 60% fail because of a breakdown of trust and communication breakdown
- 25% fail as a result of not properly preparing heirs
- 15% fail for other causes.
- Mistakes in financial or tax decisions accounted for less than 3% of the failures
- 60% of failures were the result of a lack of communication and trust within the family.
- 25% of family estate transition failure was due to the fact that heirs were unprepared to handle their newly-found wealth.
- Only 2% of heirs keep their inheritance with their parents’ assigned financial advisor
- The Small Business Administration (SBA) reports that about only16.5% of family-owned businesses successfully survive to the third generation.
- Less than a third survive the transition from the first to the second generation
- Only half of those making the first transition survive the transition from the second to the third generation
- A Farm Journal survey found that 80% plan to transfer control of their operation to the next generation, but only 20% of surveyed farmers were confident their succession plan would succeed.
- An Iowa State University study showed that:
- 50% of American farmers did not have an estate plan, and
- 71% of retiring farmers had not identified a successor. 
500 Years or 3 Generations: Are You a Fugger or a Vanderbilt?
Examples throughout history of family wealth transition, both successful and not, demonstrate how success rest primarily on the intelligence, insight and forethought of the estate’s progenitor, the founder of the family fortune, and how he or she prepares the family to take responsibility of it.
The Fugger Family: 500 Years of Generational Success
An excellent example of a successful historical legacy is the Fugger family. The dynasty was founded by Johann Fugger, a weaver from the Bavarian town of Augsburg, around 1396, when he joined the weaver’s guild and began to amass his fortune. He later became a successful merchant as well as a weaver, and used his wealth to establish a family that became a historically prominent group of fifteenth and sixteenth-century bankers, members of the mercantile patriarchy of Augsburg, international mercantile bankers, and venture capitalists.
Johann’s great-grandson, Jakob Fugger “The Rich,” born in 1459, became the most famous member of the dynasty when, in 1520, he built the walled Fuggerei, a Roman Catholic housing settlement for the poor, which is still occupied today, almost 500 years later.
Tenants pay an annual rent of 1 Rhein guilder, the same as in 1520. In today’s money, that’s 8.8 euro cents, or about $1.23. The one stipulation is that the poor who live there must promise to say three prayers every day — the Lord’s Prayer, Hail Mary, and the Apostles’ Creed — to honor and support Mr. Fugger’s wish that he and his descendants’ gain entry into Heaven.
The family charitable trust, which survives to this day, has been careful in its investments. Most revenue for the upkeep of the Fuggerei comes from old family holdings, which became a staple investment for the Fuggers in the late 17th century after they got burned on higher-yielding but riskier financing ventures. Alexander Fugger-Babenhausen, a descendant of Jakob the Rich, expects soon to replace his father — Prince Hubertus Fugger-Babenhausen — on the Fuggerei trust’s board. And the legacy goes on…
The Rothschild Family: Leaders in Banking for More Than 250 Years… and Still Going!
Another good example of generational success for a historical legacy is the Rothschild Family. Two hundred years ago, Mayer Amschel Rothschild, a banker in Germany, asked each of his five sons to move to the five main financial capital centers of Europe for the purpose of forming a bank. Each son was loaned initial capital, charged at a lower rate of interest, allowed to earn all of the profits, and required to repay the loans, so that future family borrowers would have the means to pursue new opportunities.
Beginning with this advantage and complementing it through development of important relationships throughout the world, the Rothschilds continue to work together as a family. Combining the importance of intellectual capital with intelligent design and cooperation continues to provide significant advantages to astute families.
Gates, Zuckerberg, et al. — Creating New Historical Legacies
The ability to create a strong family legacy that can last for centuries is not limited to past generations. A number of today’s entrepreneurs have generated vast wealth that can survive them with thoughtful planning and foresight.
The first name that most people might think of in those terms is Bill Gates, who, as of this writing, is considered the richest man in the world.
Gates studied the work of Andrew Carnegie and John D. Rockefeller, two other example of successful American legacies. In 2000, he and his wife combined three family foundations to create the charitable “Bill & Melinda Gates Foundation,” which was identified by the Funds for NGOs company in 2013 as the world’s wealthiest charitable foundation, with assets reportedly valued at more than $34.6 billion.
As of 2007, Bill and Melinda Gates have given over $28 billion to charity, and plan to eventually donate 95% of their wealth to support their philanthropic endeavors.
Mark Zuckerberg, the founder of Facebook, is another American entrepreneur and philanthropist whose legacy should last for generations. His personal wealth today is estimated to be $25.3 billion, and is considered among the 100 wealthiest and most influential people in the world.
Zuckerberg’s philanthropy is noted worldwide. His Startup: Education Foundation, which began in 2010 with a $100 million donation to the public school system of Newark, New Jersey, invests in ed-tech and innovative, high quality school models and supports to help all children succeed.
In December, 2010, Zuckerberg, Gates, and investor Warren Buffett signed a promise they called the “Giving Pledge”, in which they promised to donate to charity at least half of their wealth over the course of time, and invited others among the wealthy to donate 50% or more of their wealth to charity.
Video: Bill Gates, Melinda Gates and Warren Buffett Discuss “The Giving Pledge” with Charlie Rose (opens in new window)
In December of 2013, Zuckerberg announced a donation of 18 million Facebook shares to the Silicon Valley Community Foundation, which, based on Facebook’s valuation at the time, were estimated to be worth $990 million in value, the largest single charitable gift on public record for 2013. To date, Zuckerberg and his wife, Dr. Priscilla Chan, have donated approximately $1 billion to charity.
Both the Gates Family and the Zuckerberg Family have gone a long way to ensure their legacies survive, even if they’re not sure what that legacy will entail. When asked about what legacy he’s hoping to leave, Zuckerberg laughed and said, “It’s a little early. I’m 27. Give me a break.”
The Vanderbilts: A Flash-In-The-Pan Fortune Ruined By Excess And Greed
A prime example of the other side of the coin is the Vanderbilt family. Cornelius Vanderbilt, born on May 27, 1794, was an American tycoon, businessman, and philanthropist who built his wealth in railroads and shipping. Known as the “Commodore,” he was also the patriarch of the Vanderbilt family and one of the richest Americans in history, amassing a fortune estimated be worth more than $100 Billion (adjusted to today’s value) at the time of his death in 1877.
Unfortunately, his early heirs squandered much their inheritance building huge estates, living lavish lifestyles, and fighting battles over Vanderbilt’s will in court. By 1973, according to one biographer, a reunion of 120 Vanderbilt descendants included not a single millionaire.
One of the problems with Vanderbilt’s legacy was that he left huge sums of money to a large number of his heirs with no instruction or guidance for how to handle their new-found wealth. Where the Fugger Family’s legacy was based on a philosophy of family togetherness and faith, Vanderbilt’s was based on a lifestyle of excess and greed.
So, the question is: How long will your legacy last? Will it survive for hundreds of years, like the Fuggers, or will it be lost in three or four generations, like the Vanderbilts? The choice is yours. With some forethought and planning, you can protect your legacy and family wealth for generations to come.
Plan For The Future To Protect Your Family’s Inheritance
A well thought-out and executed estate plan is a good first step, but it alone will not guarantee the successful transition of your wealth. While a family trust based on your core values and beliefs can help protect your assets from abuse and excess taxation, unless you have established and communicated these values to your heirs, chances are your legacy will be another victim of the “3 Generation” rule.
The Family Trust Institute can help you break the “3 Generation” rule. While we offer our free online estate planning system to help you get started, our services go far beyond the financial details of your estate.
Our core purpose is to help you create harmony between your assets and your goals. We do this by aligning all of your assets – financial, intellectual, and human – with your estate planning priorities. We help you enhance the capabilities of these assets and reduce the risks of failure. You will see these benefits:
Unlike traditional estate planning, our process understands the true nature of legacy and wealth transfer, both tangible and intangible, and the effect it has on heirs and future generations. Most importantly, we include your true wealth and perspective in your plan.
With our comprehensive program, we will help you:
- Match your estate plan with your priorities
- Protect your legacy for generations to come
- Avoid mistakes that cause 70% of estate plans to fail
- Provide your heirs a roadmap to success
1. Preparing Heirs: The Advisor’s Role in Successful Wealth Transition, by Donald Liebenson, 6/14/2012; Millionaire Corner, published by Spectrem Group
2. From Shirt Sleeves to Shirt Sleeves, by Gary Pittsford; Inside Indiana Business
3. Farm and small business transition and succession: Now is the time!, by Craig Thomas, July 18, 2013; Michigan State University Extension, Michigan State University Product Center
4. In This Picturesque Village, the Rent Hasn’t Been Raised Since 1520, by Mike Esterl, Dec. 26, 2008; Wall Street Journal
5. Cornelius Vanderbilt, Wikipedia
6. Lost Inheritances: Americans Blow Through Family Fortunes at a Remarkable Rate, by Missy Sullivan, March 7, 2013; Wall Street Journal Money
7. Bill Gates, Wikipedia
8. Mark Zuckerberg, Wikipedia
9. Zuckerberg talks kids, gadgets and his legacy, by Matt Hamblen, May 25, 2011; Computerworld.com