The central part of Family Capital(1) focuses on the current generation of the Jake Titan branch of the family. In 2005 Jake Titan Jr. stepped down as head of the family office (almost too late, and only due to illness) and named his son, Ned Titan, and stepdaughter, Rose Wainwright, to succeed him. Ned and Rose were exactly the same age and had grown up together since the age of four. They were very close.

Ned (the great-great-grandson of the original George Titan) has a daughter, Suzy, in her late twenties, and a son, Geoffrey, seven years younger. Suzy is living and working in New York, but is expected to marry soon and start a family. Geoffrey (the “loser son,” as he calls himself, still living at home with mom and dad) is still in college, working on his Ph.D. in history. Rose also has two children, Ellen and Billy. Ellen, about Suzy’s age, is also living in New York (with Suzy) and is working for a natural foods startup company. Billy is a salesman with a pharmaceuticals company in Boston.

Family Capital follows the adventures of this family group as they deal with all the usual problems of managing a large, liquid investment portfolio: finding a new (and better) advisor, developing sensible investment objectives, drafting an investment policy statement for the family, designing an asset allocation for each generation and individual, selecting money managers, reviewing performance, and so on.

We sit in on all the meetings between the Titan/Wainwright family and their advisors, Carrie Knowlton and Roger Epperson, from the firm of Spenser Advisors. Each chapter is structured in novelistic – or screenplay – form, so that we actually hear the dialogue between the family and the advisors. Sometimes the meetings stick close to the agenda, but as often as not family members “hijack” the meeting to talk about something more important to them.

For example, in the middle of a discussion about investment objectives for a vehicle called the “Grandchildren’s Trust,” it turns out that some of Ned and Rose’s children aren’t all that enthusiastic about having so much of their wealth tied up in trusts. Let’s listen in on some of this discussion:

[Family members review proposed language for the investment objectives of the Grandchildren’s Trust, which contains this sentence: “Thus, while all living family members are potential beneficiaries of the Grandchildren’s Trust, the more likely beneficiaries are unborn future descendants of the family.” Immediately, Ellen interrupts.]

Ellen: Well, Geoff, there goes our inheritance!

Geoffrey: I’ll say! I wonder if anyone is ever going to get this money. I mean, I’m not trying to be greedy, but if I remember it right, the “grandchildren” referred to in the Trust are Dad and Aunt Rose. And, at best, it’ll be my kids who eventually get it, or maybe even my grandkids.

Ellen: And mine, and Suzy’s and Billy’s.

Geoffrey: Right. So how many generations is that that didn’t get the money?

Ellen: A lot, that’s for sure. Five or six generations, anyway.

Ned accuses his niece and nephew of being greedy, but Ellen counters:

Ellen: *  *  * Geoff isn’t being greedy and neither am I. We’re just questioning why this money has to be tied up for so long. I mean, if we could get our hands on the money we might give it all away, so what’s greed got to do with it?

Geoffrey: By the time the money is finally distributed, it’ll have been in trust for a century!

*  *  *

Ned: But I’m still not getting the point. The Grandchildren’s Trust has a whole lot of tax, estate, and asset protection advantages. Why wouldn’t we want to keep it going as long as possible?(2)

The discussion then moves to the history of trusts and to controversies surrounding them. Carrie (the senior financial advisor) points out that while the English common law trust dates back to the late Middle Ages,(3) the concept of the fiduciary goes all the way back to Aristotle. At which point Geoffrey blurts out:

Geoffrey: Did you say Aristotle? Did the poor guy have all his money tied up in trusts?(4)

But back to the trust controversy:

Carrie: Speaking historically, Jay Hughes points out *  *  * that following the French Revolution trusts were banned by the Napoleonic Code. The reasons were that trusts at that time were viewed as a restraint on the economy and as leading to the production of a failed class of people, that is, trust beneficiaries.

Ellen: I understand the “trust-fund-baby” argument—I sure hope my generation isn’t a bunch of trust fund babies!—but what do you mean by a restraint on the economy?

Carrie: Trusts in those days were used to tie up large swaths of property—land—in England and France. The beneficiaries of those trusts had no special incentive to manage the land efficiently so it would be productive well into the future. So the productivity of the land declined.

*  *  *

Ellen: [I]t seems to me that the French were right to worry that trusts might create a failed class of people. When a person’s money is all tied up in trusts, it’s infantilizing. You can’t manage the capital yourself—that’s delegated to some trustee somewhere—and you get a certain amount of income over which you have no control at all.

Geoffrey: And if you need more money for some reason, you have to go begging on your hands and knees to the trustees to try to get it. Even though it’s your own family’s money!

Ellen: And people who get large distributions from a trust, for which they didn’t have to do anything except be alive, really turn into trust fund babies. Some of these people I swear barely have a pulse.(5)

So how does the argument turn out? See footnote 1.

(1) You can buy the book here:

(2) Family Capital, pp. 100-101.

(3) The origin of the common law trust is in fact controversial, as Carrie points out (in the book, not as excerpted in this post). English common law claims its invention, serving knights who were headed off on crusades and who needed someone – a trustee – to look after their property. Other experts think it worked the other way around, that the trust was invented by Islamic law – the waqf – and was brought back to England by knights returning from the crusades.

(4) Family Capital, p. 103.

(5) Family Capital, pp. 105-106.

Next up: On Family Capital, Part 4

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Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

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