I have maintained a daily chronicle of my thoughts and experiences during this most interesting of times

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adverb: to competently express interest, surprise, disbelief, or contempt

Dynasty

“If Santa were to bring you a gift that would make your wildest dreams come true, what would it be?”

This is a thought experiment in the style of those proposed by SavingNinja. The one thing asked of participants is for a stream of consciousness outpouring of thoughts rather than a carefully polished article. Here goes…

Ambush

As a little kid, I was troubled by the notion that my bedroom was a high traffic area after I fell asleep.

Popular culture tells us that at various times of the year any one of the Easter Bunny, Santa Claus, or the Tooth Fairy will magically visit children in the dead of night, and leave behind fabulous gifts.

While I enjoyed the presents, as a child who was prone to overthinking things at times, I pondered some troubling questions and inconsistencies.

I had seen rabbits in real life and had observed where the “chocolate” eggs came from. Some things cannot be unseen, no matter how enticing the supermarket advertising campaigns may be!

What exactly was the Tooth Fairy doing with all those teeth she purchased? Why the trafficking of human body parts? Was she attempting to corner the market for false teeth?

Was Santa Claus promoting the virtues of free trade by flagrantly ignoring tariffs and sales taxes? Or was he attempting to bust the grip of the local overpriced toy store cartel by giving his products away for free? I hoped so.

One year when I was about seven years old I decided to set a trap for Santa and ask him some serious questions.

How did he know exactly what would make the wildest dreams of children come true?

And if he had the technology to fly all around the world in a single evening, why hadn’t he shared it so that we could avoid those endless hours stuck in the car during road trips to visit my grandparents?

After lights out, I snuck out of bed and spread a line of Hot Wheels cars across the floor just inside the door of my bedroom. Then I lay in wait with a torch, ready to pounce.

Inevitably, I fell asleep.

My slumber was shattered by a string of expletives. More shrill than stubbing a toe. Less vehement than treading on Lego.

The torch spotlit an adult doing a fair imitation of a cartoon character who had slipped on a banana peel. Foot shooting out from underneath body. Arms windmilling. Balance lost. Landing with an almighty crash amongst the collection of the strategically placed metal cars.

What had started with a roar ended with a painful whimper.

An involuntary gasp of horror escaped my seven-year-old mouth when I realised whom I had trapped. Torch off. Hastily burying myself under the covers. Pretending to be asleep as though my life depended upon it.

Because at that moment, it did!

Dreams do come true

Here is a thought experiment for you: if Santa were to bring you a gift that would make your wildest dreams come true, what would it be?

Let’s skip past the banal clichés and virtue signalling.

We would all love peace on Earth, an end to world hunger, and a cure for cancer. Many of us would also all love to win the lottery and see our kids lead long healthy and prosperous lives.

But those are unlikely to have been the first things that popped into your head.

Be honest with yourself. Nobody will know. There is no one to impress.

What would it really be?

The legislatures of several American states gave this question some serious thought. In their heart of hearts, what do the people who matter really want from Santa?

How about a legal entity that incurs no taxes on any income or capital gains earned?

One safely out of reach from creditors, scorned spouses, and child support seeking progeny?

An arrangement that will persist forever, free from any inheritance taxes?

A vehicle that operates entirely at the discretion of those who created it, yet is capable of influencing the behaviour of generations of future beneficiaries?

A means to ensure your own individual ideology is persisted for posterity. The wearing of tin foil hats. Llama worship. That irrational fear of the number seven. Financing the campaigns of those candidates least deserving of elected office, just for chuckles.

In short, the legal means to create a dynasty.

Have you ever felt a hankering to recapture those halcyon days of the 1670s?

A time of great inequality, when everybody knew their place… because they had inherited it from their ancestors and from which there were precious few viable escape routes. Wealth and assets were concentrated amongst the aristocracy, passed down within noble houses or lost whilst playing the game of thrones.

Back before the Duke of Norfolk’s infamous squabble with his siblings over an inheritance resulted in the establishment of the “rule against perpetuities”. This rule established the important legal precedent that trusts were time-limited rather than eternal. That eventually the legal shield and protections that a trust may provide will cease.

Over time this rule contributed to a vast transfer of wealth. A novel and relatively new financial concept, the limited company funded via shareholder capital, emerged as the preferred vehicle for entrepreneurial ventures. This, in turn, helped to finance the development and commercialisation of many technological innovations during the industrial revolution.

In recent years, many of those American state legislatures have repealed the rule against perpetuities, either extending the limit out to several hundred years or removing it entirely.

Some threw in some legal liability shielding as stocking fillers. A few topped things off with generous tax breaks. In short, they created the sort of gift that keeps on giving.

In perpetuity.

Just the sort of magic that dreams are made of, providing of course that you happen to have some assets or wealth to protect!

These legal manoeuvrings tend to change the lens through which many of the recent global anti-money laundering and anti-tax avoidance regulatory crusades are perceived. Was bringing an end to Swiss banking secrecy and imposing sanctions against leading offshore financial centres really the altruistic pursuit that it was portrayed to be?

Or were they merely a devious means of white-anting the competition, so that those in need of a discrete wealth preservation arrangement would use tax shelters domiciled within the United States instead?

Dynasty

What would you do if Santa left you with such a gift?

Somebody smarter than me once observed that “it is not what you earn, but what you keep” that determines wealth. A discretionary trust which didn’t have to pay any taxes would certainly help.

For the first time in internet history, some of those optimistic and overly simplified “safe” withdrawal rate projections that conveniently ignore the impacts of taxes and fees may start to be a possibility.

Now consider what someone with a Buffett or Bezos sized fortune could do with one.

An altruistic bazillionaire could establish a charitable organisation capable of doing good deeds in perpetuity. Think the Gates Foundation, funded by its own perpetual money-making machine.

Perhaps recognising and rewarding scientific excellence, like the Nobel or Turing awards.

Maybe funding medical research to cure cancer, vaccinate against malaria, or even someday conquer mortality.

However, anyone who has ever sat through a Christmas cartoon special will have observed that for every noble hero there is an evil cartoon bad guy with a diabolical plan for global domination.

Some of them are comedic and unimaginative. Attempting to buy a sporting premiership. Fly to Mars. Secure a world record. Or just to ruin Christmas.

Others are potentially far more nefarious. Seeking to advance an ideology or steer society’s path for their own devices.

Once upon a time, such a goal could be achieved simply by acquiring tabloid media and television stations, then herding the masses by adopting a preferred editorial slant amongst all the salacious celebrity gossip and sports scores. An easily led public unquestioningly accepting what they were told.

Election outcomes were bought by those politicians willing to bend the knee and offer up the most favourable post-election business outcomes. Be kind to your local media mogul, and their coverage will be kind to you.

As the internet gave a platform to anyone with an opinion, the audience has ever-increasing access to a variety of voices. Some open to new ideas. Many seeking confirmation of ideas already held.

Today, the way to determine favourable election outcomes is to capture the local candidate pre-selection process and gerrymander electoral boundaries.

Ensure that only those candidates endorsing your world view secure the nomination to represent a major party. Then finance their campaign sufficiently to secure the seat.

This removes uncertainty from the equation. If no moderates or dissenters have a seat at the table, then they can’t derail your agenda.

In political systems where only two parties stand a realistic chance of forming a government, this has proved to be a remarkably effective way of advancing an ideology. Of course, you still need to encourage enough of your voters to actually vote, but that is what marketing and manipulating voter eligibility rules are for.

Imagine if a rich evil cartoon bad guy established one of these perpetual trusts with strings attached. If their descendants wished to enjoy the wealth, they must perpetuate and promote the ideology.

Of course, all these activities occur today irrespective of the usage of perpetual trusts. The main difference is that over time incompetent or lazy offspring often prove to be remarkably adept at turning large fortunes into small ones.

Wealth transference becomes evolutionary, as fortunes rarely survive more than a couple of generations beyond the demise of the fortune’s creator.

However, a return to the world of perpetuities seeks to reintroduce the risk of a self-perpetuating aristocracy. As the Spider-Man comics famously observed: “with great power comes great responsibility”. These dynasty trusts could be great things if used for the right reasons.

Yet judging by the fallout from the Panama Papers, few people seeking the protections offered by offshore tax havens do so with noble intentions in mind. Would their apparent successor, perpetual trusts with liability shields and tax breaks, likely prove to be any different? I suspect not.

A closed system

In the immortal words of Star Trek’s Mr Spock, “the needs of the many outweigh the needs of the few”. The advent of so-called dynasty trusts would appear to deliver the exact opposite, a magical Christmas gift that delivers the wildest dreams of a select few, yet potentially at the expense of the interests of a great many.   

This has proved to be a fascinating thought experiment. At the outset I had expected to conclude that somebody who succeeds should be free to enjoy the fruits of their labour and entrepreneurship, free from outside influence telling them what that can and cannot do with their wealth providing that they contribute to society via paying taxes.

However, I had never considered the question of longevity in this regard.

Today there is much bellyaching about wealth inequality. About how difficult it is for young people to acquire property, and thereby enjoy a tax-advantaged means of wealth generation.

Often it is the older generations who are blamed,. They were fortunate enough to purchase properties at comparatively lower prices. Now they are living long enough that this concentration of wealth is perceived to adversely impact the ability of subsequent generations to follow a similar path to financial security.

What if those older folks were to retain ownership of those properties forever? Via the usage of a perpetual trust, that dream becomes a feasible possibility.

When I imagined that outcome extended indefinitely and scaled across whole firms or sectors, it sounded great for the early movers who were able to get in at the beginning.

However, it sucks to be anybody coming along behind and hoping to emulate that outcome. A bit like trying to find a good internet domain name or social media handle that hasn’t already been taken.

Of course for some there would be the benefits of inheritance, as in the days of the once great noble houses.

As for the rest of us, dynasty trusts don’t really sound like the sort of things that Christmas dreams are made of.


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