David’s Articles

David has been writing and publishing since 2006.  

This post was written and published prior to September 2023 when David and his prior firm, Family Capital Strategy, merged with Greycourt.  Views expressed reflected David’s personal views at the time and do not necessarily reflect the views of Greycourt.  Posts and information may be out of date and should not be relied upon for investment advice.

Wealth and The Irony of Ownership

Nov 18, 2021 | Family Wealth

Every system is perfectly designed to get the results it gets. 

– W. Edwards Deming

I have been thinking a lot recently about the Deming quote above, specifically in the context of the concept of ownership.  Ownership is an action and behavior that is largely encouraged in Western, liberal democracies.  Being based in the US, I can probably speak more completely to our culture norms and mores, and ownership is in some ways a sacrosanct concept.  Think for example about how we encourage home ownership as a policy matter through the tax deductibility of interest and implicit subsidy of long-term lending through the Fannie/Freddie programs.

A pro-ownership attitude is generally apparent for wealth as well.  It is generally common knowledge that wealth is most commonly and efficiently created through the ownership of things.

This brings us to the point of today’s title – the irony of ownership.  So on the one hand, we as a society are organized to promote, encourage, and develop a pro-ownership mindset.  Yet once you have attained wealth, almost immediately and unanimously the advice will be to use structures that require relinquishing ownership.  

There are a variety of common instruments that are recommended and deployed, the most common of course being the trust fund.  By relinquishing direct ownership of the asset, the individual may be able to retain use and enjoyment of the assets through Asset Protection Trusts, Spousal Lifetime Access Trusts etc.  But in exchange for so-doing, the assets acquire a degree of protection that would be more difficult to obtain if held directly.  This dynamic is certainly the case for generational wealth planning vehicles.

The more I contemplate trust structures, I am more of the view that they are effectively outsourced ownership arrangements.  I turn over ownership of an asset to someone who in theory is well equipped to care for it.  In exchange for that, they manage it on my behalf, and I get to use the benefits of it there in.

In many circumstances, this may make sense for individuals who are ill-prepared for the responsibilities of ownership.  

Yet that said, this implied contradiction between a society that promotes ownership on the one hand, but has tax and other incentives that discourage ownership in the long run is worth considering more deeply.  In the seminal (yet laborious to read), Lives in Trust, the author notes the use of ‘outsourced ownership planning’ creates a legal surrogate that takes on a life of its own.  Said differently, the strength of professional owners is that they manage the assets to a specific and often dynastic mandate.

Yet conversely, capital so stewarded will loose much of the dynamism that characterized the entrepreneurial ethos that created the wealth in the first place.  This is by no means an attempt to resolve this tension, but it is worthwhile to consider what is gained and lost by the various incentives that are in place.


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