How to Set Up a Trust Like the Kennedys
Joseph P. Kennedy (the patriarch of the Kennedy family) was born and raised in East Boston, Massachusetts. Through sheer grit and determination, he amassed a fortune while he and his wife, Rose, raised nine children, which led to 29 grandchildren that make up the list of Kennedy names we learn in history books today.
Joseph’s version of the American dream was fairly straightforward - build enough wealth so that his children would never have to worry about money again. He wanted them all to dedicate their lives to public service and not be distracted with the typical financial realities that preoccupy most of our lives.
In order to make this dream a reality, he set up a series of trusts along the way and ultimately left $400 million behind when he died in 1969 - equivalent to over $3 billion in today’s dollars.
So what did he do with all that money?
According to a NY Times article published in 1977, trust funds were set up in 1926, 1936, 1949, and 1959, and served as a repository of $100 million for his family, and distributed around $500,000 each year in taxable income to his five surviving children (at the time of the article) - Senator Edward M. Kennedy, Eunice Kennedy Shriver, Jean Kennedy Smith, Rosemary Kennedy and Patricia Kennedy Lawford, and his wife, Rose. There were a few other family members and it’s unclear how much non-taxable income was generated from these trusts, but it appears he followed the common wisdom of having annual distribution around 3-4% of principal - a “sustainable” rate of withdrawal.
However, the other hundreds of millions (300ish?) appears to have been dispersed among other entities and likely generate many more millions - so it’s unclear how much is being paid to advisors, donated to charities, or simply reinvested in other holdings.
In thinking about how much is ‘too much’ to give to your family, Warren Buffett’s quote comes to mind:
“I want to give my kids enough so that they could feel that they could do anything, but not so much that they could do nothing.”
And there lies the dilemma for any wealthy family - yes, rich people problems, but nonetheless a problem for anyone hoping to build a long-lasting legacy. No one wants to see their hard-earned wealth devolve into generations of “trust fund kids,” but, for most, nothing is more important than family so you have to figure out how to manage the dissonance.
According to the same article:
Persons close to the family say the major trust funds are allocated in roughly $10 million segments for each of the 10 recipients or their estates.
[the trusts] stipulated that at certain intervals (such as his children's 40th and 45th birthdays) control of the principal would begin to move from the trustees to [] beneficiaries.
The trustees who watch over the funds are close friends or spouses of the Kennedys.
Another interesting point to note is that most of the trust assets appear to be held in a relatively small group of real estate properties.
Anecdotally, I’ve found that most of my wealthy clients have garnered the majority of their wealth from buying real estate decades ago. Those who sold their small businesses, seemed to have reinvested a substantial amount of proceeds into real estate as well.
Real estate's simple business model appears ideal for multi-generational wealth because it’s really hard to mess up (unlike with other speculative investments) and there are generally plenty of competent property managers around to manage the day to day without the family having to be directly involved (unless you want them to be).
In other words, although you would hope your children are financially prudent and business savvy, when it comes to real estate, you don’t have to be a genius to collect rent checks.
Paul Graham (the co-founder of Y-Combinator) once said: “most fortunes are lost [] not through excessive expenditure, but through bad investments…”
So if the long term assets are tied up in real estate, rather than being churned through stock trades (or speculated in crypto) or other trendy investments, things can pretty much run on auto-pilot for a very long time without the temptation to switch things up with the click of a button.
But what was the purpose of the Kennedy trusts?
Estate taxes were a primary concern. The Kennedy’s naturally didn’t want the government to get everything (seems ironic in a way given his public service intentions), and if you are wealthy and domiciled in Massachusetts, then estate taxes could eat up over half of your estate.
But, as mentioned above, Joseph Kennedy really did want his children to focus on public service, and by having trustees manage all the finances (which could be a good or bad thing depending on how you look at it), his children were free to do just that.
Despite some of the tragedies of the Kennedy family, it appears that Joseph Kennedy’s intentions have been met fairly well with many of his descendants running for public office and/or being involved with various non-profits.
So what’s the main takeaway here?
If you are setting up trusts for multi-generational wealth:
Consider passive investment holdings that are easy to administer
Select a group of trusted friends / family members who are not direct beneficiaries of the trusts
Fund the trusts throughout your lifetime to let assets appreciate out of your estate (and therefore avoid estate tax).
Set up different trusts for different purposes - the first set of trusts were for his kids, but his wife later set up trusts designed for their grandchildren. Some of the later trusts may have also been more nuanced for charitable giving as his wealth exceeded his original goal.
Whether you have millions or are just starting out, trusts allow you to avoid probate, minimize estate taxes, and protect your children's inheritance - making them a practical solution for anyone interested in passing on their wealth to the next generation.
Need help with your estate planning?
If you would like to review or update your estate plan, then give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.
I’m always happy to help!
Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
477 Main Street
Stoneham, MA 02180
