7. Dead Hand Control

On May 31, 2011, a dozen lucky people ranging in age from 19 to 94 split a hundred million dollar jackpot when a trust created by their distant ancestor Wellington Bert, a gilded-aged timber tycoon who had died a century before, finally paid out its accumulated riches to three of Bert's nine great-grandchildren, seven of his 18 great-great-grandchildren, and two of his great-great-great-grandchildren. Why did they get his money and not Bert's children or grandchildren? Probably only because Bert couldn't figure out a way to keep them from getting it too. You can't take it with you! Hello, and welcome to You Can't Take It With You, a podcast about the life and afterlife of America's greatest fortunes. I'm Eric Schoenberg, a psychologist interested in why some people accumulate large amounts of wealth that they don't spend on themselves. I've been sharing stories about what people actually did with their wealth after they died to see what they might tell us about why these tycoons made it in the first place. But many of these stories reveal a potential problem. Just because someone leaves money to some people in their will doesn't mean they made that money in order to benefit those people. The story of Wellington Bert, who didn't seem to want to give his wealth to anybody at all, makes that point even more clearly. After all, what preference does that reveal? Before sharing Bert's story, however, I want to begin with two brief digressions. First, I want to explain in more detail a story I already shared briefly in the episode about John McDonough. Benjamin Franklin's demonstration of the power of compound interest through his bequest of money to be held in trust for 200 years. Franklin, in fact, might be called the patron saint of the power of compound interest. In 1732, he began writing and publishing Poor Richard's Almanac, the source of such classic sayings as "A Penny Saved, Is A Penny Earned," which became such a best seller that he continued publishing it annually. In 1785, by which time Franklin had become an international celebrity, a French mathematician wrote a parody mocking him, featuring a character called Fortune It Richard, who leaves a small sum of money in his will to be used only after it had collected interest for 500 years. Franklin, who is already 79 years old by then, wrote a letter back to the Frenchman thanking him for a great idea, and in 1790 he indeed left bequest of a thousand pounds or about $4,400 to the cities of Boston and Philadelphia on the condition that the money gathered interest over a period of 200 years. Franklin stipulated that for the first century the cities could only use the money to provide loans to young craftsmen attempting to start their own businesses. After 100 years, the cities could take about 3/4 of the accumulated balance to pay for public works projects with the remainder of the money left to grow for another century. In 1990, the 200th anniversary of Franklin's death, the city of Boston received $4.5 million while Philadelphia got $2 million. Now turning a few thousand dollars into millions is impressive, but those final payments could have been far larger if 3/4 of the money hadn't been used in 1890. And they could also have been far larger if the cities had been allowed to invest the money in things other than small business loans. But to Franklin, being the extremely practical man that he was, the true point of the exercise wasn't simply to demonstrate how much money could grow over long periods of time, but also to benefit the cities of Boston and Philadelphia. I think that in the same way, economists also think they are simply being practical by arguing that, look, ultimately money has to be used for something, right? Otherwise, what's the point of working so hard to accumulate it? The problem, though, is that this causes economists to assume that wealth left behind after you die must have been intended for someone else to use. Since most rich people with children do in fact seem to leave much of their money to them, economists therefore assume that's why they accumulated it in the first place. But consider the story of Peter Telleson. Telleson, born in Paris in 1735, was the third of four sons born to a wealthy Swiss banker. At the age of 25, he moved to England, where he turned a good-sized fortune of 12,000 pounds he had inherited when his father died five years before he arrived in London, into an enormous fortune of over 800,000 pounds by the time he died at age 62 in July 1797. In Telleson's will, he gave each of his three sons 23,000 pounds, twice what he had gotten from his own father, and each of his three daughters 12,000 pounds, with a few smaller amounts going to his wife in various relatives. The remainder of his estate, estimated at 600,000 pounds, or around two and a half million dollars, went into a trust that would end up making the will one of the most famous and controversial in British legal history. Because Telleson directed his trustees to keep investing and accumulating money until after the deaths of his three sons and all of their children, at which time the money would be divided equally among each son's eldest male-linear descendant. Telleson recognized that his plans might prove controversial, writing in the will, "As I have earned the fortune which I now possess with industry and honesty, I trust and hope that the legislature will not in any manner alter my will or the limitations thereby created but permit my property to go in the manner in which I hear by dispose of it." The will certainly proved controversial to the three sons, who challenged in court in December 1798. Their legal counsel said the will was, "A cruel and deceitful testamentary disposition which aims to overwhelm the most near most affectionate and most unoffending relatives by an unnatural prescription merely for the sake of an outrageous vanity, eccentricity, ambition, avarice and heartlessness." But even though the general public agreed, "The will is unkind and illiberal. It represents the most extraordinary instance upon record of calculating an unfeeling pride and vanity in a testitor, disregarding the case and comfort of his immediate descendants for the miserable satisfaction of enjoying, in anticipation the wealth and a grandism of a distant posterity." "Perhaps all the world would think this was a will that should have been put into the fire." Nevertheless, in April 1799, a court ruled that the will was valid. The Telus-Unson's appealed but lost again in 1805. They would spend half a century making futile attempts at breaking the will through both the courts and parliament. Finally, in 1856, the triggering death of Telus-Unson's last surviving grandson ignited one final legal frenzy as his descendants fought over who was in fact the eldest male-linear descendant of each of the three brothers. In the end, because so much money had been eaten up by legal costs over the years, two already wealthy men inherited an amount that was only roughly equal to that which their ancestor had left 70 years before. Which is ironic, because at the time of the first court case, the public considered the will not only anti-family and immoral but positively anti-social and a danger to the community. After all, as a court report in 1799 pointed out, the Telus-Unson Trust could last for 70 years and grow to as much as 20 million pounds or more, a truly staggering amount of wealth for the time, maybe the equivalent of $500 billion today, many argued that something had to be done. Public opinion against the whole idea of the will became so strong in fact that the year after the initial court decision, parliament passed a new law called the Accumulations Act, where sometimes the Telus-Un Act, by a vote of 50 to 3, in order to "prevent the effects of posthumous avers" by a general prohibition on building up wealth and a trust for longer than 21 years following somebody's death. Over the next two centuries, similar "bruels against perpetuities" became part of many state legal codes in the United States. Which brings me finally to the story of Wellington Burke. He was born August 26, 1831, near Rochester, New York, the oldest son among 13 children in a poor farming family. When he was seven, his family moved. moved to Jackson County, Michigan, and when his father died five years later, Wellington became the manager of the family farm. He stayed in that role for a decade during which time he also managed to complete two years of college, but at age 22, he left home to travel the globe as a working sailor. After four years of wandering in 1857, the 26-year-old Bert returned to Michigan and took a thirteen-dollar a month job at a lumber camp near St. Louis. According to one historian, the woods boss liked what he saw in the tall, strong, young W.R. Bert, who knew how to give orders. After a month on the job, Bert's pay was doubled, and he was made camp foreman. In 1858, with money he had saved and what he could borrow, Bert struck out on his own as a lumber operator. His success was rapid. He would eventually own thousands of acres of woodlands throughout the Upper Midwest, as well as several sawmills. In 1864, he built an entire town around his sawmill on the Saginaw River, which he named Melburn after his favorite Australian city. By 1870, it was among the largest sawmills in the world, with a barrel factory, shingle mill, carpenter and blacksmith shops, a gas works to illuminate the town's 45 houses, two boarding houses, a store, a library and a school. Constructing a whole town wasn't easy, and it wasn't cheap. But it made sense to Bert because it town attracted families, and as that historian also noted, he mainly hired married men because married men won't go on strike. Bert thought big about everything he did. For him, it wasn't enough to invest in a profitable salt mine. In 1889, the New York Times reported that, "Wellington are Bert, president of the Michigan Salt Association, sales on Wednesday next for England on an errand, the results of which will be felt from one end of the United States to the other. He goes to secure $10 million by means of which, the entire salt product of the United States will be controlled by a syndicate of which he will be the head." But sometimes Bert's ambitions got ahead of his abilities. Three months later? Wellington are Bert, went home yesterday morning without forming an international salt trust. The Kansas and Louisiana Salt Men did not materialize. So Bert decided that if he could not become the salt king, he would become a railroad barren instead. In 1891, he received a state charter for the 58-mile-long Cincinnati Saginaw and Mackinaw railway. Bert's best business deal, however, may have been mostly luck. He bought large tracks of cut over Timberland in northern Minnesota, which turned out to lie at the heart of the Misabi Iron or Range, providing him with a steady and growing stream of income after he signed long-term leases on the land with U.S. steel shortly after the turn of the 20th century. Bert lived well, was proud of his wealth, and was happy to use it to bolster an already very large ego. He dipped his toe into politics, serving a year as mayor of East Saginaw, and after an unsuccessful run for governor of Michigan in 1888, he spent a year in the state senate. As a biographer put it, "He fought for attention. When traveling abroad, he employed his own press to report on his journeys for the daily newspapers." He became a prominent philanthropist in his local community, paying for most of the cost of the Saginaw High School Manual training building, and the city auditorium, and giving liberally to the local YWCA, home for the aged, and women's hospital. Up until the events surrounding his death and his will, Bert's family life appeared to be fairly unremarkable. He married his first wife in 1860, and had three daughters with her before she died seven years later. Two years after that, he married his second wife, with whom he had another daughter and two sons. After that wife died in 1904, Wellington spent the rest of his years leading a solitary existence in Saginaw. Then his oldest son Charles died at age 46 in July 1917, a month before Wellington turned 86, motivating him to write a new will. The handwritten will created a trust that would provide $5,000 annual allowances to each of Bert's four daughters and to Charles' widow, $2,000 to each of Charles' three daughters, $30,000 to his surviving son George, and other small annual allowances to relatives, friends, and former employees. There was also a total of $24,000 in annual donations designated for various charities. In total, Bert's will called for around $125,000 in annual distributions. But the income from the leases on his Minnesota property alone would easily cover that. So what would happen to the rest of his vast wealth, or what Bert called his "Golden Egg?" The trust herein created shall continue for 21 years after the death of my last surviving grandchild that shall be living at the time of my death. That's right. Like Tellacin, Bert didn't want anybody to get his wealth until 21 years after the death of his last grandchild, which would turn out to be the youngest Charles' daughter Marion, born in 1905. And to be clear, because of the fallout from the Tellacin story of century before, that time period was the longest he was allowed. Absent that rule, we can guess that Bert would have likely made the ban on further distributions permanent. Only a month after Bert signed the will, his oldest daughter Harriet died at age 54. And a week after that, Bert signed a first codicill to his will, which excluded his youngest daughter Marion from his estate entirely. As best as I can tell, this change was related to Marion's divorce from her first husband, which happened around the same time. Three months later, Bert wrote a second codicill, this time adding annual payments of $6,000 his trust, to his son-in-law Louis Hay, and Hay's son, Bert's grandson. Again, the reasons are unclear, but presumably related to the fact that the grandson was at the time of the change fighting with the US Army in Europe, and had recently become the father of Wellington Bert Hay Jr. Bert's first great-grandchild, born in May 1917. Two months later, in February 1918, Bert signed one final codicill changing the will by eliminating the $24,000 in annual charitable donations. His reason for this change seems perfectly clear. Back in 1915, the Saginaw City assessor had hyped the tax assessment of the value of Bert's personal property, from $400,000 to $1 million. A newspaper report quoted him as telling the City Council, "You'd merely be killing the goose that lay the golden egg." He made his threat even clearer in May 1916. Calling the city assessor of Pinhead, Wellington Bert announced today that the action of the officials in refusing to cut his assessment would cost the city a bequest of one and a half million dollars which he had intended to leave it. It is interesting, however, that this threat was made a full year before Bert signed that new will, which still included $24,000 in annual gifts to charity. So while it's certainly possible that he had eliminated a large lump sum gift from an earlier will, it wasn't until two years after that outburst that he finally decided to act on his threat of fully eliminating his gifts to the people of Saginaw. Bert died on March 2, 1919, with an estate valued at around $13 million. A year later, the fight over the will began when the Guardian for Bert's three-year-old great-grandchild sued the estate over the disposition of the Minnesota Iron Orleases. Since Minnesota had one of those statutes against perpetuities, the family was successful in this initial suit, and the leases, worth an estimated $5 million, were distributed among Bert's four surviving children and his four grandchildren whose parents had recently passed away, along with an additional $700,000 in cash in order to pay estate taxes on the leases. Since the leases represented around 40% of the value of the estate, the family agreed at the same time to give up the annuities they were to get under the will. In August 1920, the remainder of the estate was settled and admitted to probate, with the trust receiving the remaining assets, which totaled around $7 million. But as with the telecents, the Bert family did not give up trying to break the terms of the trust. In the early 1940s, the family filed another suit, arguing the trust was invalid due to legal technicalities, even negotiating among themselves on how to divide the money and anticipation of a victory, but the Supreme Court of Michigan ruled that the trust was still valid. In 1960, the family benefited from another legal twist related to a prohibition on perpetuities for real estate specifically. When Burt's grandson, also named Wellington Burt, died, causing a Saginaw County probate judge to order the distribution of another $700,000 from the trust. And then, in 1989, Burt's last surviving granddaughter died, triggering the 21-year countdown to the termination of the trust, which finally happened in May 2011. Once again, the family negotiated among themselves to determine how the $100 million jackpot would be divided among 12 airs, a division accepted by the probate judge in the case. The youngest recipient was 19-year-old Christina Cameron, who received over $2.5 million, same as their 20-year-old sister, Corey. They were in line to receive the money because their grandfather, Burt's great grandson, died in July 2009, and his daughter, their mother, died eight months later at age 50, missing out on her inheritance by only a year. Christina was interviewed about her windfall. I'd rather not rely on it. I'll probably just save it. I don't know, it's just not as big of a deal to me as it was to most of my family. I guess all this happening within a year made this seem more like a curse. My grandfather was pretty excited about it, and then my mother was pretty excited about it as well. Corey and I are not as excited. So why did Wellington Burt leave such a curse to his family? What preference was he revealing? The obvious answer offered by most observers repeated endlessly a decade ago in the many news stories appearing about the end of such a strange trust, was that Burt was punishing his children over some family spat, likely related to fall out from his daughter's divorce. And it is undoubtedly true that Burt was prone to fights and feuds. I was able to discover at least four legal disputes from his business career that made it to the Michigan Supreme Court, plus another two that made it to the Supreme Courts of Nebraska and Illinois. Burt was also indicted in an illegal train fare rebading case and was sued by his in-laws and by his former lawyer. He even sued John DeRoccafeller. In December 1896, Burt publicly criticized the United States' controller of the currency for not closing a Michigan bank that Burt thought was insolvent, leading that public official to offer this memorable response to the newspapers. I didn't think it worthwhile to pay any attention to Mr. Burt, because in Michigan he's known as somewhat erratic and carries outside of the fact of having acquired considerable property, little if any wait. Then there was an 1874 ruling by the Michigan Supreme Court that Burt's second wife was liable for slandering an unmarried woman when she passed along a rumor that the young lady had had a miscarriage. Plus, of course, there was the whole dispute with the city of Saginaw. It certainly seems plausible, therefore, to consider Burt as another person who cared more about who shouldn't get his money than about who should. But in his case, he just kept adding to the list of people he didn't want to get any money until he ended up with nobody who wasn't on it. On the other hand, Burt had helped his children financially into their adulthoods. His oldest daughter, Harriet, had married into the family that had built and then bankrupted the Ann Arbor Railroad. Burt took over the line, allowing his son-in-law to remain as the general manager for another decade. He also established his two sons-in-business, setting up his older son Charles and the family lumber business in Kentucky, and spending a million dollars to build a cement plant in Michigan for his younger son George to manage and run. And finally, there were the bequests under the will, which, though small relative to Burt's wealth, were hardly nothing. The $30,000 a year he gave his surviving son would be more like three-quarters of a million dollars a year today, and even the $5,000 a year he gave his daughters would be a respectable $125,000. So why would like to suggest that the biggest clue to his motivations is the cause of death listed on his death certificate. Sanility. Now I presume that the doctors of the time, meant that he died of old age rather than that he had died of dementia. But remember, he wrote his final will in July 1917 at age 86 and made three further changes before dying in March 1919. What are the odds he was fully in his right mind during all those changes just two years? Before his death. I would argue that the story of Wellington Burt's will presents the same problem as Mark Hopkins failure to right one at all. Were they revealing a preference or were they making a mistake? Personally, I think that in both cases it was the latter and that if they had been able to see the results of their decisions they would have chosen to act otherwise. In short, I would argue that Burt was simply a cantankerous old man who let his spite overcome his reason, a failure of logic that also resulted in almost half the estate being taken by his family immediately anyway. And what about Peter Tillerson? He at least appears to have been more successful with his will. His children lost. But why did he bypass his children and grandchildren in his will? Given the fight the sons put up to have the will overturned it seems natural to assume that there was also some family conflict involved perhaps a father fed up with lazy spend-thrift sons. But I couldn't find any evidence that the sons were lazy or spend-thrift. Two of them were members of parliament even before their father's death. What's more like Burt, Tillerson had given his sons considerable help already. Six years before his death he had transferred his highly profitable merchant banking business to them. And he had also lent them about 15,000 pounds each. In his will he forgave those loans, in addition to giving them another 7,000 pounds. And to be clear, 23,000 pounds in 1797 was the equivalent of something like 500 million dollars today. In fact, Tillerson pointed precisely to the fact that his sons were already comfortable and well-established in explaining his reasoning. In one sense an economist could agree with Tillerson Hardley. Wealth has declining marginal utility. And once you're already really rich more money isn't going to make you much happier. In other words you get a lot more benefit out of your first million dollars of wealth than you get out of the second. And an economist would say that if you already have a million dollars and you would get more pleasure out of investing the next million dollars you get than you would from spending it then you should invest it. Which is basically what Tillerson is saying here to his sons. Look, you have enough to be comfortable. You'll get little benefit from spending that extra money on more luxuries, better to save it and let it grow. And what was Tillerson's goal in locking up his wealth for some distant descendants benefit? It seemed safe to say that he was trying to do what every rich man of his time and place wanted to do. Have his family join the titled aristocracy. But since he didn't manage to acquire a title himself which he could pass on to his old son he decided to hedge his bets and create a pile of money that would make whichever great grandchildren of his who did manage to get a title fabulously rich enough to buy a suitable estate. In other words Tillerson saw his enormous wealth as not being four consuming by his children or grandchildren but rather for benefiting the family as a whole. Or perhaps it would be more accurate to say for benefiting the family name. Since one clause in the will focused on precluding a beneficiary from adding any hyphenations or making changes to the name Tillerson. And notice that this logic leads to exactly the point I keep making. The very rich aren't accumulating their wealth in order to spend it later or for their kids or grandkids to spend it later. They're accumulating it because they get more pleasure from another million in the bank than they would get from spending another million. I want to be really clear, from an economic perspective, this is not saying that rich people are particularly greedy or power-hungry. It's simply that for the very rich, extra spending doesn't bring much more pleasure. And so in an important sense, their money is no longer about consumption. Wellington Bert called his excess wealth his golden egg. Comedder Cornelius Vanderbilt, the richest American of the 19th century, called it his surplus. When Vanderbilt died in 1877, he left 95% of his $100 million estate to only one of his surviving 10 children, explaining, I have not been fool enough to get this together, to haven't scattered when I'm gone. What do you have got, isn't worth anything, unless you've got the power? And if you give away this surplus, you give away the control. Vanderbilt was following the social norms of the British aristocracy, which for centuries had practiced pre-mogeniture, giving almost everything to the oldest son. So had Vanderbilt's predecessor, as richest American, John Jacob Astor, who initiated an Astor family tradition of concentrating bequests on one son that lasted for several generations. The first economist Adam Smith offered the following explanation for why England's aristocrats practice pre-mogeniture. When land is considered as the means only of subsistence and enjoyment, the natural law of secession divides it among all the children of the family. But when land was considered as the means of power and protection, it was thought better that it should descend undivided to one. Peter Telleson, by contrast, aspired to have his family join the aristocracy. But he himself was more influenced by the social norms of emergent class that was more focused on subsistence and enjoyment than on power and protection, and thus tended to defy bequests more equally. After all, Telleson did treat his sons equally. None of them got any money, but each of them could have a grandson who could, as long as they had a grandson that is. I've argued that people become rich because they like being rich, and then face the difficult task of deciding what to do with that wealth since they can't take it with them. Now economists think that when people are faced with a difficult but important decision, they carefully evaluate their options and choose the one that they think will best accomplish their goals. I suggest instead that when people are faced with a difficult but important decision, they rely heavily on social norms to tell them what to do, particularly norms around fairness and right and wrong. Consider one point Peter Telleson stressed in his will. As I have earned the fortune which I now possess with industry and honesty, Benjamin Franklin made a similar point in the same codicill to his will, which created the long-term trust for Boston and Philadelphia. It has been an opinion that he who receives at a state from his ancestors is under some kind of obligation to transmit the same to their posterity. This obligation does not lie on me who never inherited a shilling from any ancestor or relation. Telleson and Franklin were both arguing that somebody who has made their own money should be entitled to leave it to whomever they want when they die. But the social norms in 18th century England placed much more emphasis on familial duties, which is why a will that seemed to punish children and grandchildren created such an uproar. Telleson's argument that his children and grandchildren neither needed nor deserved anymore than the large amounts he'd given them fell on mostly deaf ears. Consider, by contrast, the view expressed by the probate judge overseeing the 2011 distribution of the birth trust about the motivations of Wellington Bert. I think he was kind of a wise old man, kind of Foxy. And really, I think knew what he was doing in the long run. Needless to say, I disagree. But it's worth thinking about the social norms that might explain why the judge might have thought that. I'd argue that Americans today would agree with Franklin that somebody who has made their own money should be entitled to leave it to whomever they want when they die. Perhaps not surprising in a country that Franklin played such an important role in helping to create. The legal sawgas surrounding the estates of John Macdonough and Stephen Gerard were important legal milestones in establishing this right as a legal principal in the United States. But there's also a social norm today, decidedly different from the one that affected attitudes toward the Telison will. In modern America, we feel that kids who didn't make the money themselves have no particular right to inherit from someone who did make the money, which may be why the judge thought Bert was being Foxy in his choice. Presumably because he thought, Bert was making a judgment about whether his children and grandchildren could be trusted to handle the money wisely. And I personally agree with both principles as well. I think people should be able to decide who gets their wealth because their children don't have an automatic right to it. It's just that the stories I've shared make me wary of the idea that just because the person who has made the money has the most right to decide what happens to it, that means they know what they're doing. And the observation that these rich people don't have any particular goal in mind other than piling up more makes me think that imposing taxes on wealth they leave after they die isn't going to make them any less eager to continue doing so. Which raises, I think, an obvious question. Most of the stories I've shared are of the states where things have gone wrong. Mark Hopkins, forgetting to write a will, John McDonough, making detailed plans that immediately fall apart, Charles Tiffany creating a trust to benefit one's son that destroys the family. So what if anything do I have to say about doing it right? Which brings us finally to my final episode, the story of someone who seems to have pretty much gotten it right if you ask me. And that's the story of the greatest fortune of them all, that of John D. Rockefeller Sr., who is a billionaire back when that really meant something. [MUSIC PLAYING] You can't take it with you was produced and engineered by Jim Latham, vocal acting by Sean Brandy, Mark DeCarlo, Andrew Lehman, Jackie Bennett, and Peter Fox.