The Vanderbilts: Lessons from the rise and fall of America’s richest family

Banks.am and wealth management company Wilco are launching a joint series of articles exploring succession planning and family governance.

As Armenia marks the 35th anniversary of its independence, the country is entering a new stage: the intergenerational transfer of substantial private wealth. Much of this wealth has been built from scratch over the past three and a half decades. Today, its owners and their families are beginning to navigate the complex process of passing businesses and assets on to the next generation – often without the benefit of previous experience or established traditions in this area.

We will present specific historical examples, accompanied by commentary from Wilco experts, to illustrate how these lessons can be applied to the Armenian context.

Once you’re in New York, you’ll most likely want to visit one of the city’s most iconic landmarks – Grand Central Terminal, or simply “Grand Central,” as it’s commonly known. Near the station, you’ll find a bronze statue of a man standing about 3 meters tall and weighing 4 metric tons, once considered the largest statue in the United States. It is a monument to Cornelius Vanderbilt, one of the most successful and wealthiest American entrepreneurs of the 19th century.

Vanderbilt, whose name is closely intertwined with the history of Grand Central’s construction, managed to turn $100 borrowed from his parents at the age of 16 into a railroad empire. Decades later, he had amassed a fortune of approximately $100 million. By comparison, this was more than the total funds held by the United States Treasury at the time.

However, in just a few generations, this immense family fortune had all but vanished.

So how did it all begin?

The rise of the Vanderbilt Empire

In 1817, Cornelius met Thomas Gibbons, the owner of a ferry business, who offered him the opportunity to captain one of his steamboats operating between New York and New Jersey. This marked Vanderbilt’s introduction to the most sought-after and innovative “technology” of the time – the steamboat. It broadened his horizons, gave him valuable experience, and helped him build a network of new connections. By 1830, Vanderbilt was already operating his own steamships, serving New York and the surrounding regions. His first major step toward success had been taken.

The most significant turning point in Vanderbilt’s career came in the early 1860s, when, at the age of 67, he sold his steamships and began investing in railroad companies, including the New York Central Railroad. Shortly thereafter, he built a new train station in Manhattan – and Grand Central was born. Today, a statue of Vanderbilt stands in front of the station that bears his legacy. Nearly a decade of success in the railroad business earned him the title of the “King of the American Railroads.”

America’s richest man leaves a legacy

Cornelius, who had 13 children from his first marriage, died in 1877 at the age of 82, leaving the vast majority of his fortune – about 90 percent – to his eldest son, William Henry. According to a widely repeated account, when passing his fortune on to his son, he offered this parting advice: “Any fool can make a fortune, but it takes intelligence to preserve it.”

Although William outlived his father by only eight years, he used that relatively short period to further expand the Vanderbilt railroad empire. Many researchers note that he doubled the fortune he inherited from his father, increasing it to approximately $200 million.

Following William Vanderbilt’s death, the family fortune was divided among his children, marking the beginning of the decline of the Vanderbilt family empire.

The beginning of the end, or “The Curse of the Vanderbilts”

Cornelius Vanderbilt was convinced that the bulk of the family’s wealth should be passed on to a single heir, but William Vanderbilt, who died in 1885, bequeathed his fortune to his three sons: Cornelius II, William Kissam, and George Washington. As the estate was divided, the Vanderbilt family’s drive to continue expanding the business began to wane, while expenses continued to rise. Until his death in 1899, Cornelius Vanderbilt II – who was the most involved in the family business and showed the greatest interest in it – managed the family’s railroad companies and continued the philanthropic work begun by his father.

William Kissam worked alongside his brother but showed considerably less interest in preserving the family’s vast legacy. After Cornelius’s death, William took over the management of the family’s companies, but soon decided to hand control of the railroads to an outside firm. He subsequently withdrew from active business and devoted himself entirely to his favorite pursuits: sailing competitions, horse breeding, and the social events of America’s high society.

His younger brother, George Washington Vanderbilt, had little interest in business and even less in developing or expanding the family enterprises. Instead, like many other members of the family, he preferred to acquire estates and build lavish mansions, where his extravagant parties became the talk of the country. To bring his grand visions to life, he hired some of the most renowned architects of the day, paying them enormous sums. Among the most memorable of his projects was the 250-room Biltmore Estate in North Carolina, which occupies an area of approximately 60,000 hectares. It is said that the estate “devoured” $4.4 million of George’s $5 million inheritance.

The late 19th century was marked by enormous expenses and a struggle to maintain their social standing for the Vanderbilts. The family acquired expensive collections of works by European artists and mansions; on Fifth Avenue in Manhattan alone, they built 10 mansions. At the same time, enormous sums were spent on maintaining these homes – even though they stood empty for most of the year.

As a result, vast estates, personal luxury, and lavish spending to maintain their high social status consumed a significant portion of the family’s wealth.

The final dissipation of the family legacy

Gradually, the family business began to lose its cohesion, fragmenting among an ever-increasing number of heirs. Although the transportation business reached its peak during World War II, the development of trucks, ships, and aviation significantly weakened the railway industry’s position. Shares of the New York Central began to be put up for sale, and after several bankruptcies, the company came under the control of the government-owned Amtrak in 1971.

By 1947, all 10 of the Vanderbilt mansions built on Fifth Avenue in New York had already been demolished, and their interior decorations and furnishings had been sold at auction. Today, the iron gates from one of these mansions stand at the entrance to the Conservatory in New York’s Central Park.

By the mid-20th century, many of the family’s famous estates had been sold or turned into museums, as the heirs’ debts continued to grow. There is a popular – albeit somewhat exaggerated – belief that when 120 Vanderbilt heirs gathered in 1973, not a single one of them was a millionaire anymore.

The most famous Vanderbilt of our time

The most famous member of the Vanderbilt family today is Anderson Cooper, Gloria Vanderbilt’s son and a sixth-generation descendant of Cornelius Vanderbilt. Although descended from the family of Cornelius Vanderbilt, once considered the richest man in the United States, Cooper did not inherit the vast fortune that had been passed down through generations. By then, much of the Vanderbilt wealth had already disappeared.

In one interview, Cooper recalled his mother telling him that he would not be able to spend a single cent of the Vanderbilt inheritance. Cooper has since said on several occasions that he is grateful for this, arguing that inherited wealth “kills initiative” and can be a “curse.”

The rise and fall of the Vanderbilts is a powerful illustration of a simple truth: creating wealth is difficult, but preserving it and ensuring that it is not squandered from one generation to the next is even harder.

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The history of the Vanderbilts is a prime example of the challenges faced by many families with substantial wealth: whom to entrust with their fortune and business, how to preserve family unity and shared values, and what tools can help ensure that wealth is not squandered from one generation to the next. We asked Karina Arutyunova, Director of Strategic Projects at Wilco and a specialist in family governance and succession planning, to share her insights on these topics.

Challenges are universal

Capital has no fixed address, but the challenges of planning for and transferring family wealth are universal. Generational conflicts, differences in perspectives, a lack of open dialogue, and the absence of shared principles and legal mechanisms for resolving intra-family disputes can all hinder the transmission of intangible assets – values, traditions, knowledge, and family history –to future generations. Yet it is precisely an understanding of family history, mutual trust, and a clearly defined approach to the future of capital and business that can lay the foundation for long-term prosperity and family harmony.
 
Building this foundation is the purpose of an entire field of global practice known as family governance. Far from being an abstract concept, it is a practical system that can include family councils, family constitutions, decision-making protocols, and mechanisms for resolving conflicts. In its more comprehensive form, this infrastructure takes the shape of a family office – a professional structure designed to manage a family’s capital, investments, and broader interests as a unified whole. At Wilco, we work both with families that are just beginning to build such an infrastructure, helping them establish the right principles from the outset, and with established family offices that require expertise on specific issues related to governance, management, and succession.

Effective succession planning is not just a private matter

In the West, family governance has a history spanning several centuries, whereas in our region, the practice of treating the family as a partnership – with governance structures, committees, and formal rules – is still in its early stages.

It is important to recognize that this is not simply a matter concerning the fate of individual families. How the first generation of entrepreneurs transfers its wealth will largely determine whether that capital remains invested in the region’s economy or gradually leaves it. Sound succession planning is therefore not merely a private matter; when substantial amounts of capital are involved, the way wealth is transferred can have broader implications for the economy of an entire country or region.

Understanding the purpose

There is no single legal instrument capable of resolving every issue, operating autonomously, and remaining effective without periodic review. The first step in estate planning is to clearly define its purpose: what the testator wants to happen after their passing – to their assets and to their family.

For example, a will should clearly specify which assets and businesses are to be transferred not directly to the heirs, but to a specially established structure, such as a fund or trust. It should define who will manage those assets and determine to whom, in what amounts, and under what conditions distributions will be made to the heirs. This allows to protect not only the assets but also the heirs themselves—from their young age, their inexperience in business matters, and the advice of people with “good intentions.”

At the same time, the choice of a specific instrument is largely determined by the jurisdiction in which the capital is held. In CIS countries, for example, one of the most common mechanisms is the fund.

Planning tools

As the saying goes, “Truth is the daughter of time.” Only time can prove whether a decision is the proper one. Life is diverse and highly unpredictable; people today cannot completely protect their families, but they have access to planning tools that can significantly reduce risks compared to their predecessors.

Uncertainty or predictability – the choice is ours.