Inheritance race gap persists even among wealthier families

Although much has been said on the yawning wealth gap between Black and Hispanic versus white families in America, a related problem is less often discussed: the racial inheritance gap. 

Members of Black and Hispanic families with the same wealth as white families are still less likely than white individuals to receive inheritances, and in turn create wills and give bequests (gifts of assets to an heir or charity), according to an August 15 issue brief, "Wills, Wealth and Race," by the Center for Retirement Research at Boston College. The research examined multi-year data on American couples over age 50. 

The research brief may serve as a reminder for advisors that while estate planning in general is important for all clients, proactive conversations around estate planning are especially important for those from communities of color. "Inheritances make up a substantial share of national wealth, but are often overlooked in discussions of retirement security," the researchers wrote. "Racial gaps in inheritances are likely to exacerbate racial disparities in wealth." 

"These race gaps (in) the probability of having a will, and the intentions to leave bequests — all of those things stay, even after we control for a lot of the things that one would think might explain those differences: income, wealth, homeownership, things like that," Gal Wettstein, senior research economist at the CRR and one of the brief's authors, said in an interview. 

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Although Wettstein said he wasn't sure of the reason for the disparity, based on the available research he believes it's tied to lower wealth in Black and Hispanic individuals' communities, which exert "more drains on their resources — relative to the size of their resources, at least, than white households on average." Thus, even if a Black or Hispanic family is just as wealthy as a white family, they might feel obligated to spend more of that on supporting relatives and community members instead of keeping it for themselves. 

"They end up knowing that they won't have as much left over. And therefore, they don't plan to leave as much," said Wettstein. 

For those families in the study that had planned to leave a bequest of some kind to their heirs, Black and Hispanic respondents more frequently failed to leave behind the amount they had hoped to. 

"The good news is that wills seem to mitigate such failures, either by preserving value postmortem or by shifting behavior throughout life, such as lowering consumption to guarantee bequest goals are met," the study brief said. 

Advisors can play a key role in narrowing this inheritance race gap by making extra efforts to help their Black and Hispanic clients to write a will, Wettstein said. This is especially important because "a lot of the value of the will is in keeping assets together or making the transition across generations smoother." 

In many families, he said, the most important asset may be the family home, which is not easy to split among multiple heirs. Dividing and selling a home might leave some family members homeless, the brief said. 

Or, Wettstein said, in the absence of a will the family home might go through the probate process to an heir that it wasn't intended for. Default asset allocation through state law may leave out property or assets that the deceased might have wished to go to a caregiver, for instance, who had not been considered the "next of kin" to inherit the estate. "The number of families poorly served by these defaults is growing, and is particularly prevalent in Black and Hispanic communities," Wettstein said. 

Read more: 6 conversations toward generational wealth in an increasingly diverse America

For certified financial planner Anna N'Jie-Konte, an Afro-Latina who is the president and director of financial planning at RIA Re-Envision Wealth, it's been "extremely typical" to see Black and Latino clients shouldering financial burdens for several family members with their wealth, as they attempt to rise above historic and ongoing injuries of discrimination that eroded wealth in those communities. Such clients often don't have an estate plan in place, or life insurance to provide for their loved ones in the event of a sudden death, even if they are wealthy. 

"I had a conversation with a client recently who is an extremely successful consultant and probably makes around $700,000 a year. … She's supporting four different households, including her own, with that money." 

N'Jie-Konte said for those clients, "It's extremely important to focus on helping them understand how the estate planning piece and the life insurance piece, as part of the sound risk management of a financial plan, play into the overall financial plan." 

"A lot of advisors take for granted that clients are going to understand why they need these things, and therefore take action. And that's not always the case."