Concentration risk management starts with a measurement and a map of constraints, because the decision itself belongs to you, your adviser, and your CPA. In my experience the mistake is treating this as a market question. What narrows the range of moves actually available is basis, holding period, who holds signing authority, and what the governing documents say.
Part of our guide: Family Office.
The short version
- Concentration is a fact about everything you own at once, and it usually gets computed from one statement.
- Basis and holding period set the cost of any change before a view about the asset enters the room.
- A position nobody present can sign for cannot be adjusted at all.
- Governing documents remove options: a retention direction, an operating agreement vote, or a contractual lock.
- For a trustee, retention is a decision that has to be reasoned, and the statute says so alongside the duty to diversify.
What the number is actually measuring
Concentration is an aggregate. The same asset commonly sits in a personal wallet, in an entity, in a trust, at a custodian, and sometimes as collateral behind a borrowing. The figure people quote comes from one of those places.
The SEC’s investor education material defines diversification as “the practice of spreading money among different investments to reduce risk” (Investor.gov). That is a definition rather than an instruction, and it presupposes an accurate statement of what is held and where.
Two things break that statement. Legal owners fragment it, so units held personally, by an LLC, and by a trust are one exposure and three separate decisions with three different signers. Committed units are unavailable units, whether pledged behind a borrowing or locked by a staking unbonding period, a vesting schedule, or a contract. And the denominator goes unstated: measured against liquid assets, against total net worth including a business and real property, or against one trust’s own portfolio, the same holding yields three different figures.
Four constraints that decide what is available
Tax. A disposition is a taxable event whose cost was fixed years earlier. The IRS treats basis as cost and separates short-term from long-term at one year of holding (Topic no. 409; Digital assets). A holding built over several years is many lots with different bases and acquisition dates, so one position is several tax objects at once. Inside a non-grantor trust the brackets compress sharply: estates and trusts reach the highest capital gains rate at income above $15,900 for tax year 2025 (Instructions for Form 1041). Whether your lot records support the identification you intend decides whether that modeling survives a return.
Access. Authority to act and ability to act are different things, and only one appears in the documents. Who is the authorized person on the custody account, who holds usable key material for anything self-custodied, how many signers a multi-signature arrangement needs. There is also a throughput limit people meet only when they try: whitelists, withdrawal ceilings, and cooling-off windows after adding a destination make the amount that can move in a week finite and knowable in advance.
Documents. A trust instrument may direct retention of a named asset, which converts the whole question into a different one. Where units sit in an entity, the operating agreement decides who may authorize a disposition and on what vote. Wyoming’s LLC act puts that in the agreement’s hands, giving it authority over “Management rights and voting rights of members” and every other aspect of managing the company (W.S. 17-29-110(a), Wyoming Legislature). Most families have never read their own voting provision, which runs two paragraphs and can decide whether a plan is executable.
Time. Every constraint above carries a date. A tax year closes, a lock lifts, a borrowing matures, a trustee’s review obligation starts on receipt. What is available in March differs from what is available in December, so the map has to be dated and refreshed. Time is the constraint left off the page most often, and the one that turns a sound decision into a late one.
When a fiduciary holds the position
For a trustee, retention stops being a preference and becomes a duty question. Wyoming’s enactment of the Uniform Prudent Investor Act puts both halves in two adjacent sections:
A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.
Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements and other circumstances of the trust.
Wyo. Stat. Ann. §§ 4-10-903, 4-10-904 (Wyoming Legislature)
Three features of that drafting matter. The exception lives inside the rule, so retention is available on a reasoned determination about the trust’s purposes rather than on a view about the asset, and what the statute wants is the reasoning, recorded. The duty attaches on receipt, so a trustee who accepts a concentrated holding inherits a review obligation immediately and nobody sends notice that the clock has started. And the statute names its own inputs, directing a trustee to weigh expected tax consequences, the role each holding plays in the overall portfolio, needs for liquidity, and an asset’s special relationship or special value to the purposes of the trust or to a beneficiary (W.S. 4-10-902(c)). That last item carries weight in a family that treats the holding as founding property, and it is the one most often missing from the file.
None of that tells a trustee what to do with the asset, and liability tracks process rather than result. Whether the trustee can execute at all is the prior question.
What I actually see
Three patterns, over and over.
The total nobody ever produced. A family holds a firm opinion about the position and no page adding it up across the personal wallet, the entity, two trusts, and the units pledged behind a loan. Every meeting reopens a figure three people compute differently, and nobody says why.
The constraint discovered at execution. A decision gets made, and then the operating agreement needs a member vote nobody scheduled, or the custody account lists one authorized person who is out of the country, or the units are locked for another eleven days. The thinking was sound and the calendar was fiction.
The inherited holding nobody opened a file on. A concentrated position arrives in a trust, years pass, and the first document describing the trustee’s reasoning gets written after a beneficiary asks. Retention was very likely defensible the whole time. No evidence exists that anyone decided it.
The exercise I would run before any of these conversations takes about an hour. List every place the asset sits: each wallet, each custody account, each entity, each trust, anything pledged, anything locked. Give every line five columns: the units, the legal owner, whose signature moves them, the earliest date they could move, and the oldest lot’s acquisition date. Finish the page before you form a view. Most people learn the real total and which parts of it can move this quarter.
Where this goes wrong
The recurring shape is a decision made against a picture of the holdings the paperwork does not support.
The failures worth naming: a total read off a custody dashboard while a large block of units sits in a wallet nobody has opened in a year. Lots treated as interchangeable, so the tax outcome discussed in the meeting bears no relation to the units that move. Retention language in an instrument the adviser has never seen. Pledged collateral counted as available. An operating agreement vote treated as a formality until a member declines. And the timing failure that costs most: units disposed of in the last week of December whose holding period would have crossed one year in February.
The decision rule
- Build the inventory before the opinion. Every wallet, account, entity, and trust holding the asset, on one page.
- Fix the denominator in writing, since people dividing by different things will not agree downstream.
- Mark what is already committed, and keep pledged and locked units outside the decision set until they release.
- Pull the lot detail per location, because basis and acquisition dates differ by lot and by pool.
- Name the signer on every line, then confirm that person can execute rather than assuming it.
- Read the governing documents yourself: retention language in the instrument, the voting provision in the operating agreement, any contractual restriction on the units.
- Put a date on every constraint, because a lock, a tax year, and a loan maturity each change what is available on a known day.
- Take the finished page to the attorney, the CPA, and the custody relationship together, since the constraint that gets missed is the one only two of them can see.
Where this sits
Concentration sits on top of every other decision in this cluster, which is why it reads as a market question and behaves as a structural one. Custody decides whether the position can be reached at all. Trusts and Wyoming LLCs decide who is allowed to act and on what vote. Estate planning decides what happens to basis at the end.
This question comes apart because no single professional owns it. It is a tax fact, a document fact, and a custody fact at the same moment, and the three people holding those facts are retained separately and have often never met. Each answers correctly inside their own frame. The family holds the only complete view and rarely realizes it, which is why the page is worth the hour: it makes you the one person who can see all three, and it turns three partial conversations into one.
Sources
- Investor.gov, Asset Allocation and Diversification (SEC)
- IRS, Topic no. 409, Capital gains and losses
- IRS, Digital assets
- IRS, Instructions for Form 1041, estates and trusts
- Wyoming Uniform Trust Code, Wyo. Stat. Ann. Title 4, Chapter 10
- Wyoming Limited Liability Company Act, Wyo. Stat. Ann. Title 17, Chapter 29
- Uniform Prudent Investor Act (Uniform Law Commission)
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Last updated: 3 August 2026. Tax thresholds for estates and trusts are indexed and change annually.
This article is general education, not legal, tax, or investment advice. It recommends no allocation, position size, or course of action, and takes no view on any asset. Talk to a qualified investment adviser, CPA, and estate attorney about your own situation.
