Estate planning is a key component of passing on generational wealth. Yet for Black Americans, the ability to pass on generational wealth has been a struggle.
Data from the U.S. Census and independent study findings reveal that Black Americans lag behind other racial groups in their ability to create and pass on wealth to future generations.
According to the Federal Reserve System’s 2019 Survey of Consumer Finances, the median wealth of white families was eight times that of Black American families.
The numbers reveal that Black Americans are not planning for future generations adequately. What can Black Americans do to begin closing the ever-growing wealth gap?
“Stop passing debt,” Martina Jimenez Sperry, executive director, market director, wealth, JPMorgan Chase Bank, N.A, said at a recent Finurah Wealth Summit. “Leave assets.”
“I see in my industry being in financial services [that] in our communities we keep passing on debt, liabilities. People die and they don’t even have enough money to be buried..we have to stop doing this,” she stressed. “No one wants to lose their loved one and inherit their liabilities, their debt.”
Money management and financial literacy were some of the issues discussed at the summit, which also included Diamond Diaspora Media CEO, Neil Nelson, CEO of Raydar LLC, Ray Daniels, and Jimenez Sperry. The event took place on April 23 at the Russell Innovation Center for Entrepreneurs in Atlanta.
Jimenez Sperry, along with other experts in the estate and financial planning industries, weighed in on how Black Americans can begin to develop wealth for future generations.
1. Purchase Adequate Individual Life Insurance
One way to ensure that you are not passing on debt to your family is to purchase a life insurance policy. Often life insurance is considered a tool to pay for a burial. Instead, it should be considered an asset that can support family members after the death of a loved one.
A 2020 study by Haven Life found that Black-American respondents only had a policy equal to one year’s income instead of their white counterparts, who had almost three years’ worth of income.
A recommendation for policy holders is to purchase life insurance at least five to 20 times the annual income. Hefty life insurance policies will allow beneficiaries to pay for funeral expenses and have additional funds available to pay off a mortgage, take an extended time to grieve, pay for college education and maintain the same means of living.
Never discount the opportunity of opening a life insurance policy on young children. Experts agree that the moment a child has a social security number, a parent or caregiver can open a life insurance policy. Policy prices are lowest with healthy young children and the cash value will increase over time, enabling parents to use it for educational purposes or other important expenses.
2. Purchase Joint Life Insurance
If you are married and your spouse cannot take out their policy, research a joint life insurance policy. Also known as survivorship, joint life insurance will supply additional benefits for a spouse and beneficiaries, providing additional funds to a family.
3. Estate Planning: Have A Will Or Trust In Place
According to Care.com, in 2022, an estimated 29 percent of Black Americans said that they possessed a will or a different estate planning document. That’s still a low number but up by 12 percent since 2020.
“Estate planning is not just for the wealthy. It is for everyone that possesses assets and wants to pass on to their children,” Chiquita Rice, a financial advisor with Monarch Investment Advisers, told Finurah. “Anyone with assets such as a home, jewelry and anything of value that you’d like to leave needs a plan.”
Jimenez Sperry agrees, adding, “We aren’t talking about building wealth, protecting it and transferring legacy,” she said. “We need to take ownership of giving it to our children.”