What’s your enough number?
Enough, enough with the Cult of More
When are we going to expand the business? When are we going to renovate the house? How much can I make in 5 years? Will it be enough? What’s enough?
It’s a common belief that you should constantly be expanding and growing. Both in your personal life and in business. The belief that you have to earn more money, buy more things, and, ultimately, have more stress is often called the cult of more. In this belief system, your focus is always on the horizon, chasing a finish line that keeps moving. Rinse and repeat forever.
What to do instead?
Have you ever sat down to calculate the amount you’d require in order never to need to earn another dollar in your life?
That’s your enough number.
When you Google “calculate enough number,” you’ll find systems of crunching numbers that are always influenced by the cult of more. But, before you go down that rabbit hole, try this thought experiment to help you find your enough number:
“Suppose you’re one of five people who have been selected by a mysterious philanthropist to participate in a contest. The five of you all have comparable debt-levels and costs-of-living, as well as similar, middle-class financial situations. You’re all roughly the same age, equally healthy, have the same number of children, and you all live moderately low-risk lifestyles. Privately, and one by one, a representative of the donor approaches each of you with a blank check and a pen, and poses the following question:
How much money would you have to be paid, right here and now, to retire today and never receive another dollar of income (from any source) for the rest of your life?
The catch this time is that whoever among the five players writes the lowest amount on the check will be paid that sum. The other four players will get nothing.”
Something to think about, right? It’s one thing to leave your door open to the secret philanthropist ready to give away their wealth, but it’s another to make a plan that works for you.
So, you’ve thought about your enough number and maybe even done some calculations. Now you have a better idea of what you’re aiming for. But, to get to that goal, you need to know where you are now.
The Where Y’at - Net Worth Calculator is the best tool to figure out where you are right now, so you can know what you need to have enough. I created this spreadsheet after making a vow to myself that I’d finally inventory all of my family’s financial stuff (4 LLCs and a rental property between us), so I could figure out what’s enough for us.
FYI, I'll be going over how to use this easy-to-use FREE resource on my next Addie Prewitt Live (slated for Wednesday, August 3, 2022 at 12:30 CST). Download the spreadsheet for free to follow along. I’ll answer your questions and make sure you’re equipped to find your enough number.
New estate tax ruling favors taxpayers
I often tell married clients that no estate tax is due unless the estate is valued at over $24 million. And while this is accurate, it doesn't tell the whole picture. Because the lifetime exemption amount is allocated per person, each spouse has $12.06 million of lifetime exclusion to use. Before 2011, if one spouse passed away and didn't use all of their lifetime exemption, it vanished. You had to use it or lose it!
In 2011, the law changed so that if one spouse died, their remaining lifetime exemption could be passed on to the surviving spouse.
It’s referred to as portability.
For the lifetime exemption of the deceased spouse to be passed to the surviving spouse, the executor must make the election by filing an estate tax return.
But, if the estate's value is below the lifetime exemption amount, no estate tax return is required to be filed. So the only reason to file an estate tax return would be to elect portability.
For example, if the lifetime exemption is $5 million when one spouse dies with an estate valued at $ 1 million, no estate tax return must be filed because the estate is less than $5 million. But the deceased spouse has $4 million of lifetime exemption that they couldn’t use, and it will disappear unless an estate tax return is filed to elect portability and pass it to the surviving spouse.
And as you might have guessed, people always mess this up!
So much so that the IRS had already granted an automatic extension of 2 years from the deceased spouse’s date of death to file the estate tax return if it was being filed solely to elect portability. But as of July 8, 2002, the IRS is granting relief for up to 5 years from the deceased spouse's date of death to file an estate tax return solely to make the portability election.
So should all estates automatically file estate tax returns? I’m not quite ready to go that far.
But if there is a substantial estate, especially if it is expected to appreciate, you should have a conversation about portability with your estate planning lawyer.
Will Elon get to walk away from Twitter?
The ongoing saga between a beleaguered social media company and the richest man in the world continues. Not sure if you predicted it, but after an aggressive bid to buy the popular social media company, Elon Musk has had a change of heart. In case you missed it, I go over the details of Elon’s initial offer here.
A few weeks ago, Elon said he was backing out of his deal to buy Twitter. So, Twitter sued him in Delaware.
I’m fascinated by whether the court will enforce the agreement Elon and Twitter signed.
The decision involves a ruling on specific performance. The concept of specific performance states that the act of paying damages is insufficient. So instead, a court should force the parties to do what the original agreement said. In this case, specific performance would require Elon to purchase Twitter for $44 billion. What a conundrum!
In this interview, a Harvard law professor breaks down all the tantalizing legal issues associated with this case. (Hint, he suggests that Elon may have to close on the deal.)
However, my guess is that they settle before it gets that far. I never thought I’d hear so much about the specific performance after law school! Let me know what you think about this case!