Post by Myra Salzer.
Since I’ve had a lot of enthusiasm by various groups interested in hearing me speak about the mistakes that I have often seen surrounding transferring wealth, it seemed appropriate to write about it in a series of blogs covering these common mistakes. I’ll continue with Mistake #2. You can find Mistake #1 here.
Mistake #2 – Not Defining Your “Nut”
The wealth owner (giver) hasn’t defined what his or her “nut” is. The nut is the amount of money that a person needs set aside to support their “satiation spending,” which is the amount of spending that will satisfy all the wealth holder’s wants and needs. If the wealth holder doesn’t know what their nut is, they don’t know what they can afford to give away now, or later. Everything that is greater than their nut is their legacy, and can be gifted without personal sacrifice (and there is nothing virtuous about sacrifice, especially if that means you will ultimately be dependent on your children!).
To find out what your nut is, you need to assume a certain rate of return on your investments, inflation rate, life expectancy, tax rates, etc. We like to play “what if” with our clients, and do a live-action analysis to show our clients the chances of them already having more than their “nut.” Just about every financial planner worth his or her salt could provide that analysis. It’s very reassuring when clients can see that they have more than enough… and very gratifying to give assets away during their lifetime, when they can see beneficiaries making the most of the gifts.