Black and Hispanic individuals in the United States are less likely to get an inheritance, have a will or plan to leave a bequest, according to a new analysis published by the Center for Retirement Research at Boston College.
Among those who do plan to leave a bequest, Black and Hispanic individuals are also less likely to realize their bequest target, the CRR's report shows.
Overall, inheritances make up a substantial share of national wealth, but they are often overlooked in discussions of retirement security. Despite this, the CRR's analysis finds racial gaps in inheritances are likely to exacerbate racial disparities in wealth, and one reason that Black and Hispanic decedents are less likely to pass down meaningful estates is that they are far less likely to have a will than white decedents.
The new analysis was put together by Jean-Pierre Aubry, the CRR's associate director of state and local research; Alicia Munnell, the CRR's director; and Gal Wettstein, a senior research economist.
While their findings add to a well-established and growing stable of research detailing the race-based gaps in overall wealth and anticipated retirement security that exist in America today, the CRR analysts also show that having a will increases the chances of achieving one's bequest target — offering a potential way to improve the situation.
The researchers go on to conclude that having a will is important for the many households whose circumstances are not adequately addressed in state default inheritance laws. Wills are particularly valuable when the major bequeathable asset would likely decline in value from being split among multiple owners, the researchers explain, as default laws tend to do.
Nevertheless, a large and growing share of individuals do not have a will, meaning this is an area where financial professionals can take concerted action to help address a major social issue affecting their clients and communities.
Where There's a Will …
The new CRR analysis is based on data taken from the University of Michigan's Health and Retirement Study survey series, which collects data from about 20,000 U.S. household members ages 50 and older every two years.
As the researchers explain, the goal of the analysis is to document how the likelihood of receiving an inheritance, the plan to leave a bequest, having a will and actual bequests vary by race — and how the four are interrelated.
"That is, to what extent does receiving an inheritance increase the likelihood of planning to leave a bequest and having a will, and to what extent does having a will relate to the realization of bequest expectations?" the researchers ask.
Specifically, the analysis uses the HRS exit interviews of proxy informants for HRS participants who have died to explore whether the existence of a will affects the extent to which bequest intentions are actually realized.
As the researchers note, wills are incredibly important in the U.S.
"The courts have determined that the U.S. Constitution protects the right of people to leave their assets to whomever they want," the researchers explain. "However, without a will, assets can get dispersed to unintended recipients. This outcome can be a particular problem for people with modest estates, where the major asset is the home and multiple heirs can lead to the fractionalization of the property."
According to the CRR report, estimates show that the default provisions are not appropriate for 22% of families, and that the probability of being marginalized by the defaults is positively related to being Black or Hispanic and negatively related to net worth and education.
"In short, dying without a will may be fine for the majority of families headed by a married couple or for many single individuals, but it can result in the wrong outcome when the intended beneficiaries are not related by blood, marriage or formal adoption," the researchers posit. "Dying intestate is a particular problem when the estate is modest and the largest asset is the home."