Taxes, relationships and skills all influence how long we hold assets. Selling also requires a plan for the proceeds and the willingness to do the work.
Taxes, relationships and skills all influence how long we hold assets. Selling also requires a plan for the proceeds and the willingness to do the work.
Asset Preferences
Selling a complex asset requires a decision to sell and a plan for the proceeds. A family can get comfortable with the price, the timing, even the tax - and still not sell, because nobody can decide what to do with the money.
A family that has spent thirty years in real estate may not know how to invest in public markets. The skill set is not there. The network is not there - the people who called with a real estate deal are not calling with stock ideas. The appetite is not there either. An investor who spent a career in land he could walk on is not comfortable owning shares of companies he will never see. When the expertise that created the wealth is specific – the asset holdings will reflect that.
Familiar holdings - even complicated ones - are preferable to the unfamiliar. They know everything about the 10-year old building, including its problems. They know nothing about the alternatives. Given a choice between complexity they understand and simplicity, families keep the complexity. Holding requires no plan. Selling requires a destination.
Most families also have a peak investment period - the years when the investors were most active and when the family had the judgment and the energy to redeploy capital well. Inside that window, proceeds have somewhere to go, and sales happen. Outside of it, finding alternative uses for proceeds is a hard problem. A seventy-five-year-old who built a real estate portfolio is not starting a second career in equities. The result is that the assets stay - because nobody had an answer for the proceeds. The decision to keep an asset until death is usually not a decision at all.
For a Current Owner, Selling Is More Friction Than Not Selling
Inertia is a powerful force in asset management. Holding requires nothing - no meetings, no decisions, no explanations. The asset sits, the K-1 arrives, the distributions arrive, and the family's attention is elsewhere. Nobody schedules a call to discuss not selling.
Selling requires a chain of actions. Find a buyer. Negotiate the terms. Manage the tax. Decide what to do with the proceeds. Explain the decision to family members who may not agree. And then let go of something that has been part of the family. Every link in that chain is a place where the sale can stall, and any objection stops the whole thing. Holding is easy – it just continues.
The friction of selling consistently outweighs the benefits - right up until the moment it no longer can. That moment arrives at the worst times: a death, a divorce, a capital call, or a tax bill due at the next deadline. The family that would not sell when it could choose the timing ends up selling when the timing chooses them. So the assets stay in the family - and someone has to deal with them.