7 Ways Women of Color Can Start Protecting Their Generational Wealth
Steps you can take now to ensure what you’ve worked so hard for stays in your family.
Did you know that only about 14 percent of college-educated African Americans leave $10,000 or more to the next generation? That means that 86 percent of college-educated African Americans are not passing even $10K to the next generation. We cannot close the racial wealth gap if we don’t keep what we work for!
Women of color in particular face barriers when it comes to closing the racial wealth gap. White female college graduates have a median wealth that is seven times greater than that of Black women, a Duke University study found. Black women also earn less, according to the U.S. Census Bureau.
It’s easy to get discouraged. Yet what if I told you that women of color hold the keys to turning around these grim statistics for their families and their futures?
As women, we typically live longer than men, so we are the final arbiters of what happens with our family’s assets. It’s up to us to make sure our children are cared for and future generations get the leg up they need. That starts with generational wealth planning.
Estate planning is not, as commonly thought, just for the rich. It’s for everyone who cares about their family. If you own your home, that’s wealth that could be leveraged to fund a college education for your loved ones. It could help your child get started in a business.
Without a plan, whatever wealth you have — be it a house or a savings account — may go through probate after you die. Families in the United States lose large amounts of wealth annually to the probate process due to court fees, attorney fees, accounting fees, and other costs.
That’s money that could have been passed to future generations with proper planning.
Everybody over the age of 18 needs an estate plan. We just don’t need the same plan as the next person. Our family structures are unique. Our asset levels and our goals are all unique. So our plans need to be specifically tailored to us.
So where to start? Here are some things you can do to protect your hard-earned wealth and pointers to help keep it in the family:
1. Determine What You Have
Start by taking inventory of everything you own. You may be surprised by all the tangible and intangible assets you have. Estimate some values, but obtain an appraisal on your home and statements from financial accounts.
2. A Will May Not Be Enough
Having a legal will with an independent executor and clearly identified beneficiaries can reduce the stress and emotional upheaval for your family after your passing. However, a will alone is wholly insufficient for protecting generational wealth. Many states require wills to go through probate, a court proceeding to determine whether or not the will is valid that is both costly and public. Creating a trust in addition to a will can help your family avoid probate costs and other estate problems upon your passing.
3. Consider if a Trust is Right for You
Contrary to popular belief, trusts are not just for the wealthy. Setting up a trust keeps your assets out of probate. There are two basic types of trusts: irrevocable and revocable. Irrevocable trusts are primarily set up for estate and tax reasons. Assets placed in an irrevocable trust are effectively no longer your property, so you no longer have a say about what happens to them. This removes them from your taxable estate and may relieve you of tax liability. Revocable trusts, also known as living trusts, allow you to maintain ownership and control of your assets as long as you are alive or competent. You may receive income from the trust and make changes, adding and removing assets as your situation changes. A revocable trust is an excellent tool for tasks such as transferring a business or real estate after death, providing for the care of minor children, parceling inheritances over time, providing long-term care for a special needs child, or leaving money to charity. A living trust can work in conjunction with a will to make sure your assets are properly handled after you're gone. You can select trustees whom you give the power to act on your behalf.
Even better than a standard living trust is a legacy trust, a multi-generational trust plan, which can protect and grow wealth generationally. Ever wonder how families like the Rockefellers were able to continue their wealth through the generations, while other wealthy families were not? Short answer: protections. When assets are invested and protected, in a stable economy, they will grow. A legacy trust can change the tide of your family’s wealth story for generations and break generational curses.
Because living trusts aren’t part of the public record, they make it more difficult for anyone to challenge your estate. Be sure to engage an attorney with knowledge of state laws to draft your trust documents.
4. Take Stock of Other Accounts
Investment accounts, such as individual retirement accounts (IRA)s, and transfer-on-death accounts, let you name beneficiaries and set up primary beneficiaries and secondary ones. If you’ve invested with a partner in joint investment accounts, there are nuances your attorney can help you consider.
5. Don’t Forget Other Key Documents
Also consider a healthcare proxy, which empowers someone you trust to make health decisions for you when you can’t. A durable financial power of attorney allows someone else to manage your financial affairs if you are incapacitated. Your designated agent can act on your behalf, including paying bills and taxes, as well as accessing and managing assets.
6. Got Minor Children? There’s a Trust for That!
In most cases, a trust for minors is set up as a way of preserving assets and distributing property to children without giving them immediate access to their inheritance. Trusts for minors are an excellent way to ensure the financial future and long-term security of your children after your death. A legacy trust for minors can help ensure that the inheritance funds that you leave behind for your children are used for reasons that are in your child’s best interest. For example, you might state that the funds within the trust can be used only for housing, education, and health-related expenses. It allows you to guide the decisions of your children and impact their spending habits even after you have passed. Additionally, you may restrict the sale of property within your estate, thus protecting those income-producing assets from being squandered.
Special needs trusts are necessary for situations where a child lives with a disability and may require expensive medical treatment in the years to come.
7. Pick a Guardian for Your Child
How can anyone possibly choose the person who will fill the role of raising their children? The gravity of this decision is enough to weigh anyone down. Sometimes it’s so difficult it prevents people from finalizing their wills. It might help to know you can name someone as the guardian of your children and then change your mind later if circumstances change. Think about the values of the person you are thinking about naming as guardian.
Would they be able to make responsible decisions regarding the upbringing, educational experience, disciplinary practices, medical care, and religious experiences of your child?
If you select a guardian who has values and viewpoints that are similar to yours as a parent, you might find yourself experiencing greater peace of mind regarding your children’s upbringing in your absence.
Of course, all this is just the beginning. There are many more aspects to consider based on your personal situation. Life changes and your estate plan should change with it. Laws and regulations change as well, and those changes may affect your situation. Plan your estate while you’re sound and capable. It’s better than waiting and having no say in how your estate is handled. Planning today ensures your tomorrow is what you envision it to be.
Want help clarifying your own estate planning goals? Fill out our quick and easy estate planning quiz.
For more information, check out our master class on Building and Protecting Black Wealth.
Disclaimer: The views and opinions expressed in this post are those of the author and do not necessarily reflect the views and opinions of the SheVentures team. All information, content, and materials available on this site are for general informational purposes only and do not constitute specific advice, legal or otherwise.
