In the past few weeks, while so much of the news has been disheartening, I’ve felt encouraged by the increased, honest dialogue surrounding the racial inequities in our country. I can’t help but think that estate planning is an important aspect of the conversation, as economic inequality is also at the heart of racial inequality.
Attorney Lori Anne Douglass, an estate planning attorney for more than 25 years, estimates that fewer than 50% of Black families have an estate plan, while another article from Black Enterprise says that number may be closer to 30%. While estate plans are essential for all people, they are especially important for building generational wealth, which is a key tool for leveling disparities and creating opportunities for Black Americans.
Generational Wealth and Black Americans
The glaring wealth gap that exists between white and Black Americans is the most enduring legacy of American slavery and the Jim Crow laws that followed, according to the New York Times. Processes such as redlining prevented many black families from purchasing homes, a vital part of building wealth in the United States. While white families have prospered, the current system has failed Black families, not allowing them to gain and grow wealth in this country.
By addressing this wealth gap, we can move toward a more fair society. Estate planning plays a role in helping families create generational wealth and offering legal protections for families.
Generational wealth is created by the assets that are handed down from one generation to the next; this could be in the form of liquid assets, but it also comes in the form of property, a life insurance policy, and other valuables.
The transfer of wealth helps the next generation pay off debt, purchase property, or set up an education fund.
With more leverage, a greater net worth, or better education, heirs are in a better position to provide for future generations. This wealth also provides more flexibility to take career risks, so loved ones can feel more fulfilled and experience the freedom to pursue their dreams.
Generational wealth is not necessarily the “old money” of a prominent family; it’s valuable to every family and can go a long way to make a difference in improving the lives of the next generation.
As we strive for a more fair world, there are important estate planning tools that can help Black families to make gains and preserve what they have earned.
Wealth Protection & Preservation
When a loved one passes away without an estate plan, the cost is often much greater to the family. There are several reasons for this: attorney’s fees associated with probate are costly, and probate can take longer without a will. If a professional fiduciary or personal representative is involved, they will also have a fee. There are also tax considerations: without strategic planning, much of the estate can go to taxes, where it doesn’t directly help family members.
Further, the money is not protected from creditors, divorces, and lawsuits.
Through the creation of a trust, a person can protect the money they pass on to their heirs from these situations. These protections are also valuable when a person fears discrimination. Many Black families have been stripped of their wealth through unfair processes time and again since the end of slavery.
Taking legal steps to protect yourself and your family if you fear discrimination is one of the best ways to ensure the outcomes you desire and to preserve wealth for the future.
It’s no surprise that a study by the US Education Department National Center for Education Statistics showed that students whose parents went to college were far more likely to attend college–and graduate–themselves. Higher education creates more earning power. Those people become parents, in turn, who value education and create more economic possibilities for their own children.
Generational wealth is part of this system: when a family begins to create momentum from one generation to the next, they have a greater capacity for earning and a greater chance of making life better for their heirs.
Imparting Knowledge and Values
Though knowledge, values, and traditions are not tangible assets, they are nevertheless a vital part of any family’s history. Black families in America have often persevered through difficult odds to retain their histories and traditions. These, too, are included in a thorough and thoughtful estate plan.
An estate plan can act as a tool of connection from one generation to the next. It is a means to convey values such as how a person would like the assets spent. A trust can specify whether the funds are for education, health expenses, or “maintenance,” all of which reflect the benefactor’s values.
For families with young children, an estate plan should include the parents’ thoughts around money. Black parents can leave detailed information for their children’s guardians about how money should be managed for their children. This could be in written form or even through a video recording.
This information is also very much a part of any estate plan, and it is often worth much more to a family than dollars. It’s a way of fostering an idea of history, connection, and self-worth. And it goes beyond wealth: family heirlooms, sentimental items, and the stories of a family’s past are all part of an estate plan because they are part of the legacy of a family.
Attorney Douglass has stated, “I am convinced that if the African American community got on the good foot and every black person who is alive over 60 did their estate planning, we’d be the richest minority group in the United States in one generation.”
With a concentration of wealth that allows for windfalls for the next generation, Black families will be setting loved ones up for success in the future, helping to close the wealth gap as it exists across racial lines.
Disclaimer: The information contained in this article should not be considered tax or legal advice and is not a substitute for such advice. State and federal laws change frequently and the information in this article may not reflect your own state's laws or the most recent changes in state or federal law. For current tax and legal advice, please consult with an accountant or attorney licensed to practice in your state.