When it comes to building and preserving wealth across generations, the Rockefeller family offers a playbook that's worth a closer look. Known as the “Rockefeller Cascade,” this strategy has allowed the family to not only amass wealth but to maintain it for more than a century. For California families with long-term financial goals, there's a lot to learn—and even implement—here. But what is the Rockefeller Cascade, and how can a modern California family leverage its concepts today?

The Rockefeller Cascade combines trust structures, strategic life insurance, and investment in income-producing assets. These tactics work together to preserve wealth, minimize taxes, and ensure that each generation benefits without draining the family's assets. This guide will walk you through how this approach might look today in California, including the legal, tax, and strategic considerations for building your own modern-day cascade.

Step 1: Setting Up a Multigenerational Trust

A fundamental aspect of the Rockefeller Cascade is the use of irrevocable, multigenerational trusts. These trusts protect assets from taxes, creditors, and even family disputes—an invaluable safeguard in a high-tax, high-cost state like California.

• The Dynasty Trust: In California, a dynasty trust allows assets to remain in trust for up to 90 years (or even indefinitely, if administered in a state like South Dakota). With a dynasty trust, assets are protected from estate taxes each time they pass to a new generation. This feature allows wealth to grow uninterrupted and provides flexibility for future generations to use the trust assets as needed.

• Example in Action: Suppose a family places $10 million into a dynasty trust in California, with investments in rental properties across the state. Income generated from these properties provides a steady cash flow for beneficiaries. Because the principal remains in trust, it's protected from estate taxes and shielded from creditors or lawsuits, a key benefit in litigious environments like California.

• Applicable Laws and Cases: California trust law allows for these long-term strategies, and court cases such as Estate of Wilson (California Appellate Court) highlight the importance of properly structured trusts. In this case, a poorly executed trust led to substantial tax liabilities. Setting up a well-drafted, compliant trust is essential.

 Step 2: Layering with Life Insurance for Tax-Free Replenishment

The next element of the cascade is life insurance. By taking out life insurance policies on multiple family members, each generation has a strategic way to "replenish" the trust with tax-free proceeds.

• Private Placement Life Insurance (PPLI): PPLI policies are a powerful tool for high-net-worth individuals. This type of policy offers tax-deferred growth, flexible investment options, and the ability to withdraw tax-free. When a family member passes, the death benefit flows directly into the trust without triggering estate or income tax.

• Why It Works in California: Given California's high income tax rates, PPLI allows for asset growth and tax deferral outside the typical California tax structure. Since PPLI is held by the trust, it bypasses both probate and estate taxes.

• Example in Action: A California family might set up a dynasty trust funded with rental property income. The trust then purchases PPLI policies on family members. Over the years, death benefits from these policies continuously “replenish” the trust, providing new capital for investment without reducing the original principal. This continuous flow of tax-free income allows the trust to grow, while family members benefit without increasing estate tax exposure.

Step 3: Investing in Income-Producing and Growth Assets

To keep wealth flowing across generations, the Rockefeller Cascade involves holding assets that can generate steady income. This typically includes a diversified portfolio of real estate, dividend-paying stocks, and private investments, all chosen for their stability and growth potential.

• Real Estate and California Opportunity Zones: Investing in real estate, particularly in California's designated Opportunity Zones, provides tax benefits while securing income-producing assets. Opportunity Zone investments offer deferred capital gains taxes on any profit reinvested into the zone, along with tax-free gains if the asset is held for at least 10 years.

• Dividend Stocks and Private Equity: California families can also benefit from dividend-paying stocks and private equity investments, which provide consistent cash flow. These assets are ideal for trust structures because they provide income for beneficiaries without the need to sell principal assets, preserving the wealth for future generations.

• Example in Action: A trust holds properties in California Opportunity Zones, which not only generates rental income but also grows in value over time. Additionally, the trust holds shares in dividend-paying companies, generating steady income that funds beneficiary distributions and covers life insurance premiums, while the principal investments remain untouched.

Step 4: Adapting the Cascade for Today's Legal and Tax Environment

The Rockefeller Cascade can be powerful, but there are unique challenges today, especially in a high-tax state like California. Here are a few modern adjustments to consider:

• Navigating California's High Taxes: California's top income tax rate is 13.3%, making tax-efficient growth essential. By using trusts and PPLI to defer or reduce taxes, California families can mitigate this burden. Additionally, if families have non-California trustees or set up trusts in states with no state income tax (like Nevada or South Dakota), they may reduce their overall tax liability.

• Leveraging Federal Exemptions: As of 2024, the federal estate tax exemption is $13.61 million per individual ($27.22 million per couple). Funding the trust up to this exemption limit helps minimize federal estate taxes, and by strategically gifting each year, families can reduce their taxable estate further while keeping their assets in trust.

• Generational Wealth Transfer Through the GST: California families can also benefit from the Generation-Skipping Transfer (GST) tax exemption, which allows families to pass wealth to grandchildren or further generations without incurring additional tax. By including this exemption in their trusts, families can “skip” estate taxes for several generations.

Is the Rockefeller Cascade Right for Your Family?

For high-net-worth families in California, the Rockefeller Cascade provides a powerful way to preserve and grow wealth. However, implementing this strategy requires careful planning, adherence to legal structures, and alignment with modern tax codes. Working with an experienced estate planning attorney, financial advisor, and tax specialist is essential.

As we look to the future, remember that families like the Rockefellers didn't build their legacies by waiting or relying solely on traditional savings. They invested in assets that would grow, they prepared for generational shifts, and they continuously adapted to new laws and regulations. Today, the Rockefeller Cascade can be customized to meet California's unique tax and legal challenges, helping families secure a legacy that stands the test of time.

In Closing: Establishing your own version of the Rockefeller Cascade takes foresight and dedication. At the Law Office of James Burns, we specialize in designing estate plans and wealth preservation strategies tailored to California's unique legal landscape. By employing the right legal instruments and working closely with your trusted financial planner—or one we hand-pick for you—you can transform this strategy from aspiration into reality.

Imagine a pathway where your wealth is not only preserved but flourishes, passing smoothly from one generation to the next, regardless of economic twists or political turns. Let us help you design a legacy that stands the test of time, turning your hard-earned wealth into a family cornerstone.

Contact the Law Office of James Burns at (949) 305-8642 or visit www.jamesburnslaw.com to take the first step.