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Financial Planning > Trusts and Estates > Estate Planning

Why Your Black and Hispanic Clients Need a Will

By John Manganaro

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What You Need to Know

  • A new analysis from the CRR shows Black and Hispanic individuals are less likely to get an inheritance, have a will or plan to leave a bequest.
  • Having a will increases the chances of achieving one’s bequest target, offering a potential way to improve the situation.
  • Dying without a will is particularly problematic when the estate is modest and the primary asset is a home, the researchers write,

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.”

Who Leaves Bequests?

In running the analysis, the CRR researchers find that, relative to white Americans, Black and Hispanic recipients of bequests tend to receive less, and the results also show that having received an inheritance is related to having a will, even when controlling for race and ethnicity.

The researchers go on to show the relationship between race and ethnicity and having received an inheritance to planning to leave a bequest of at least $10,000, $100,000, and $500,000, respectively. For example, a non-Hispanic Black individual is about 5 percentage points less likely to expect to leave a bequest of at least $10,000 than a white respondent.

These results are generally consistent across bequest amounts, according to the CRR researchers. That is, having received an inheritance increases the likelihood of leaving bequests of all amounts, and non-white respondents report lower expected probabilities of leaving moderate bequests.

“This sign flips, however, for bequests of at least $500,000,” the researchers note. “One possible explanation is that non-white individuals who are very successful feel a strong obligation to ensure that assets are left to their family.”

Intent and Achievement

The researchers argue these results regarding both wills and bequest intentions reflect individuals’ plans to leave a legacy, and the next section of their analysis turns to the question of whether these intentions are achieved, whether wills help in this process, and whether the process varies by race.

According to the analysis, in terms of race and ethnicity, for the $10,000 target, only the Hispanic ethnicity is significantly related to a lower likelihood of leaving the target bequest, while being a Black American is not predictive of failing to achieve the targeted bequest.

“However, the latter coefficient goes in the anticipated direction, with Black decedents more likely to fall short of their goal,” the researchers note. “The relatively weak significance of the Black coefficient is unsurprising given the modesty of the goal. Turning to the $100,000 and $500,000 targets, Black and Hispanic decedents are less likely to meet their target … Strikingly, though, across race and ethnicity, those with wills are less likely to fall short of their expected bequests at each of the target amounts.”

According to the researchers, these results underscore the racial gap in bequests, since even for those with the same expectation of leaving a bequest, Black and Hispanic decedents fail to meet their targets more often.

“This finding is particularly alarming, given that Black and Hispanic respondents have both much lower expectations of leaving substantial bequests to begin with and are less likely to have a will,” the researchers explain. “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.”

Conclusion for Financial Professionals

One clear conclusion drawn in the new analysis is the simple fact that having a will is important for the many households whose circumstances are not adequately addressed in state default inheritance laws.

As noted, wills are particularly valuable when the major bequeathable asset would likely decline in value from being split among multiple owners, as default laws tend to do.

“This analysis shows that the rate of intestacy is especially high among Black and Hispanic individuals, even after controlling for a wide array of demographic and socioeconomic characteristics,” the researchers explain. “Relatedly, these individuals are also less likely to expect to leave bequests of meaningful size.”

In the end, the evidence suggests that Black and Hispanic decedents, conditional on how likely they thought achieving a certain bequest size was, are less likely to achieve that goal.

However, having a will is related to a greater likelihood of attaining bequest goals, offering a potential route for improving this situation, and one that financial professionals can take advantage of in their planning work alongside clients.

Credit: Adobe Stock 

John Manganaro

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