Fewer Retirees Have Wills in Place, Putting Their Families at Risk of Losing Their Inheritance

A growing number of retirees are neglecting a critical aspect of financial planning – having a will in place. This oversight not only jeopardizes their own wishes but also puts their families at risk of losing their rightful inheritance. 

The importance of estate planning cannot be overstated, and as more retirees forego this vital step, it’s essential to shed light on the potential consequences that lie ahead for both seniors and their loved ones.

New research from a Health and Retirement Study (HRS) found only about two-thirds of those aged over 70 have a will – a significant drop from the mid-1990s, when almost three-quarters of families had one. 

The HRS report found estate planning is even less common among Hispanic and Black communities. Even among those who do plan to pass on their assets, Black and Hispanic individuals are less likely to realize their bequest target.

Although the “inheritance talk” may be awkward for many families, the need to set the right expectations for children has never been more pressing. Reports reveal that inheritance will play a much larger role in the financial security of millennials than in previous generations. 

One study from IFS Research found inheritance will make up 16% of life income for millennials born in the 1980s. That is almost twice the level for their parents (9%), born in the 1960s, as millennials are predicted not to amass as much wealth themselves.

Given the long-term economic trends, including rising income inequality, ballooning student debt and falling home ownership rates, the same pattern may well hold for Gen Z, and beyond. 

What is to be done to get American household’s ‘will power’ back? In this article, Wealthtender financial advisors and estate planning experts offer advice on the importance of planning inheritance properly and how marginalized communities can secure their wealth transition. 

Financial Experts Offer Feedback on Trends

While will preparation levels are declining across the board, there is a larger gap for some communities.

The HRS report highlights some of these statistics. For instance, a Non-Hispanic Black individual was found to be about 5% less likely to leave a bequest of at least $10,000 than a White respondent.

“Disparities in bequest realizations among Black and Hispanic individuals may be attributed to several factors,” says Doug Greenberg, President of Pacific Northwest Advisory.  “Firstly, economic inequalities – historic and systemic disparities have left many Black and Hispanic individuals with fewer assets to bequeath.” 

Greenberg also cites cultural factors and financial literacy levels. “In some cultures, wealth is transferred through means other than formal bequests, such as gifts during one’s lifetime – access to financial education and estate planning resources may be limited in some communities.”

Greenberg posits that community outreach and legal reforms are among the available solutions. Some citizens may also be delaying dealing with the issue, fearing the expense involved. 

“Cost continues to be a significant obstacle to completing an estate plan and will,” says Freeman Linde, Estate Planner at La Crosse Financial Planning. “For a long time, paying a few thousand dollars to a local attorney was the only way to get it done. Then tech companies sprang up, allowing you to pay a few hundred to complete it online. But many folks don’t feel confident in these solutions.”

Families Struggle to Discuss a Difficult Topic

Many adult children may fear their inheritance is at risk but fail to speak up to get clarity on the issue. They may not want to come across as greedy or infringe on their parents’ privacy.

Millennial children may not know what their parent’s assets are worth and worry the total could diminish in value due to economic downturns, mismanagement, or unexpected debts. 

Family disputes, especially in complex family structures, cause unease over how the estate may be divided. This can be especially true with blended families and other variants, where second spouses, or another spouse’s children, are involved. Thankfully, for the next of kin who’ve been cut out, there is a course of legal redress. 

“In most jurisdictions, biological children can contest a will if they believe they’ve been unjustly excluded,” says Greenberg, who says most may claim their parent was unduly influenced or mentally incapacitated at drafting or that the will doesn’t make reasonable provision for them.

“However, the success of such claims varies…, it’s crucial to note that the mere fact of being a biological child doesn’t guarantee inheritance, especially if the will is explicit about the exclusion.”

Managing potential conflict over inheritance requires forward planning and communication early on. Discussing inheritance touches upon both death and money, two touchy subjects, but avoiding it outright can hamper progress. 

Proper Estate Planning Can Minimize Taxes

Jeff Hall, CFP, Partner and Senior Advisor at Rather & Kittrell, says there is a perception barrier around wills and that clarifying the difference between estate planning and wealth transfer can put things in a new light. He says the former is about retaining control and avoiding taxes, while the latter is about focusing on the recipient in the here and now.

“There are only three recipients of our assets when we pass: our children, charity or the government,” he says. “When it comes to children, wealth transfer begins with our parenting. Loving our kids equally means we treat them uniquely. That’s a great place to start, especially since communicating values and wishes can be the thorniest part of the wealth transfer process.”

In this era of shifting economic dynamics and evolving demographics, the importance of estate planning has never been clearer. The decline in will preparation, particularly among marginalized communities, underscores the need for action. 

As millennials face greater reliance on inheritance for financial security, addressing the disparities in bequest realization and fostering open conversations within families is vital. 

Ultimately, leaving a legacy is about more than the transfer of assets itself, it’s also important that the way it is done reflects our values and is in keeping with the ethos of our family culture. 

Find a Financial Advisor

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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.