My parents were among the first generation of Americans to benefit from landmark civil rights rulings and legislation. Even though those milestones occurred decades in the past, the material fruits of that progress are just now becoming apparent, and it’s happening right across the table from me.
When I’m working on a wealth transfer plan with a family, I tell them they’re making 50-year decisions. Whether they have $10,000 or $10 million, the full impact of what we do today may not be felt for decades to come.
For those starting with some level of generational wealth already, they immediately know what I mean.
For African Americans, however, the wealth transfer process may be new territory. Like my family, some may not have an established history of how and when their families have managed a significant wealth transfer. They’re the first.
And they’re not alone.
In 1954, the Supreme Court ruled on Brown v. Board of Education – prohibiting racial segregation in public schools. The Civil Rights Act of 1964 followed. While policies and practices did not change overnight, children who entered school in the ‘50s were the first generation of African Americans with broad access to public education and were able to build a life for themselves.
We are in the midst of the largest minority and multicultural wealth transfer ever. There have been many catalysts for change in the past several decades that have driven this shift. But two stand out in my mind as perhaps the most significant.
These children are the transformational leaders who are now retiring, just like my parents. Over the past 65 years, they became college graduates, entrepreneurs and highly skilled blue- and white-collar workers. They invested in pensions and 401(k)s, mutual funds and real estate. They sent their kids to college, many of whom are now in the millennial generation, the largest in the U.S.
And now, decades later, a generation of publicly and privately educated African Americans is approaching retirement – having to make their own individualized 50-year wealth transfer decisions. They are part of the baby-boomer wave transferring wealth down to their millennial children.
Over the next several decades, research estimates that African American households are expected to transfer between $1.1 trillion and $3.4 trillion.
Simply put, African American families are making decisions right now on how to pass down large amounts of wealth. The landscape for wealth accumulation and need for financial advice has also materially changed for African Americans.
While the tools may be the same, many African Americans may find themselves sitting across from a financial advisor who sees them as just another client or doesn’t understand what makes their situation different.
Being the first creates complexity. A family may not have the depth of knowledge on what documents are needed, what strategies to consider, what their advisor should bring to the table or which other professionals to pull in.
Even those who aren’t technically going through a first-time wealth transfer – maybe a parent left them a small business, or there was a small inheritance – this next generation is facing a more complex financial landscape.
Since 2007, data shows that wealth is increasing significantly more for African Americans compared to whites. The median net worth has been growing across all groups since then, but while whites have seen an increase of 17 percent since 2013, African Americans have seen a 29 percent increase.
In 2016, 26 percent of white families received an inheritance. For African American families, it was 8 percent. This percentage is going to increase as their wealth increases.
It is probable that the younger generation will drive the sensitive but necessary conversations with one or both parents as they approach retirement. Key considerations for a family to discuss transferring wealth for the first time together include:
Start the conversation with your family. Initiate a conversation with immediate family members to ensure one or both parents facing the transfer are comfortable. The primary agenda item should be taking care of the parents to ensure they have a lifestyle they’ve earned with a quality of life centered on their interests and passions. Ideally, the initial conversation is limited to your immediate family and leads to a broader introduction
to a roster of trusted professional advisors.
Engage a team of professional advisors. A team of advisors will provide advice and help bring the family’s strategy to fruition. The team should include financial advisors but also accountants and family attorney(s) among others. When searching for a team of advisors, consider a diverse and multigenerational team who can connect with the entire family and understands the family’s culture, background and unique needs. A strong team will help guide a family and refine goals based on your individual situation, and ensure the legacy passed down is maximized.
Identify available assets. Keep in mind that a gift doesn’t always come in the form of cash. Other assets such as insurance, stocks, interest in closely held businesses, real estate or personal items can all be transferred.
Define objectives and outline a comprehensive wealth strategy. As part of the ongoing dialogue with your family and team of advisors, determine objectives and develop a comprehensive strategy. For instance, does your parent want to give while they’re still living or through their will; all at once or over a period of time? Other questions such as whether philanthropic gifts are important or how to allocate assets across an entire family are important to discuss.
Address cultural, emotional and psychological impacts.
Transferring wealth can be an emotionally charged process, especially if multiple siblings or family members are involved. It’s important to consider and address the cultural and family specific implications. Effective communication with everyone involved is essential.
We believe an advisor-led, digitally-enabled approach will bring the unique needs and challenges of each family to the forefront. Their personal lives, race, sexual orientation, family dynamic are seamlessly integrated into their financial decisions.
Once wealth is transferred, there will be more family firsts: the first to be inheriting a significant amount of wealth. You will need to consider how to prioritize that wealth to create even more opportunity in the hopes of one day passing down wealth to your own children.
Putting an inheritance toward more education for instance, potentially leads to a higher wage, more opportunity and a better career trajectory. Additionally, more wealth brings more complicated taxes and the increased likelihood of bad actors, fraudsters and people asking for money.
That’s why the common element everyone needs during the wealth transfer process – regardless of wealth, age or experience – is a financial advisor who can create a unique plan for an individual situation, and who can help simplify the decisions the family needs to make.
There is no common roadmap for the unique wealth journey we’ll all be going on over the next 50 years. Having someone across the table who understands your journey to help put a strategy in place is a key ingredient to a successful wealth transfer. Brian Lamb is Executive Vice President and Head of Wealth & Asset Management for Fifth Third Bank. He joined the Bank in 2006.
He was recognized by Savoy Magazine as part of its Top 100 Most Influential Blacks in Corporate America in 2018.