Lost generational wealth for black families
John Huston’s family had their storied estate threatened, selling off their land and the chance for generational wealth to build a school that was never built.
USA TODAY’s Ramon Dompaul, Jasper Colt
Americans have a new kind of beef: legal beef.
According to Cerulli & Associates, more than 11,000 baby boomers are now turning 65 every day, and approximately $124 trillion is expected to go to younger generations and charities by 2048. Even as financial advisors help Americans prepare both baby boomers and their heirs for the largest wealth transfer in history, data shows more disputes are emerging.
According to the independent nonprofit National Center for State Courts, the number of probate and probate cases entering state courts increased by about 32% between 2020 and 2024, based on data from 39 states.
Experts say much of the increase is directly tied to large-scale wealth transfers between generations. As wealth shifts to Gen
“Traditionally, wealth passes from one spouse to the surviving spouse and then to the children,” said Scott Rahn, founding partner and attorney at RMO LLP. “But now, for blended and non-traditional families, the situation is complicated.”
The rise of 401(k)s also involves complex inheritance because there are very specific rules, he said. Under federal law, spouses automatically inherit a 401(k).
However, if your ex-spouse is still listed as a 401(k) beneficiary, he or she can legally inherit the funds, even if you waive that right in your divorce settlement. Although the estate may be able to sue the ex-spouse for funds; rear Distribution in some jurisdictions.
Anyone who inherits a 401(k) can legally change the beneficiaries. That means your retirement savings could end up in the hands of people you never intended to have.
why can’t we get along?
Many problems can arise in blended and nontraditional families because the law tends to favor nuclear, biological, and marital relationships, often excluding stepchildren and unmarried partners.
More than half of all Americans have been or plan to join a blended family, and 1,300 new stepfamilies are formed every day, according to the nonprofit Stepfamily Foundation.
Stepchildren are not automatically considered legal heirs unless they are legally adopted, so they must be specifically named in estate planning documents or risk being inadvertently disinherited.
Experts say conflicts can also arise due to favorable perceptions between biological and non-biological children, as well as between surviving spouses and children.
How much can poor planning and disagreements cost?
Just going through probate, the legal process that distributes a deceased person’s assets and settles debts, can take months and cost thousands of dollars.
According to the American Association of Retired Persons (AARP), probate costs approximately $1,500, but vary widely from state to state and depend on the size of the estate.
Some attorneys estimate total probate costs to be approximately 4% to 7% of the estate value, which covers the legal, administrative, and court fees required to settle the estate.
Lawyers say costs can mount into the tens of thousands of dollars if disputes arise, such as challenges to wills or trusts or claims of breach of fiduciary duty.
How can Americans avoid conflict?
According to experts, here are some things to consider:
- Plan for flexibility: This is “probably the best way to plan,” says Rahn. “There are a lot of plans out there that have very specific requirements or inflexible requirements (like irrevocable trusts). Then you get into a situation where people change, circumstances change, and the plan can’t handle those changes and circumstances.”
- Update your documents: Regularly update documents containing beneficiary information to account for changes in your financial situation, marriage, divorce, new family members, including formal adoptions, grandchildren, etc., or your feelings about any of them or others named in your will.
- Family meetings: “The most important thing that people don’t do is have family meetings and sit down and talk about these issues,” Rahn said. Conversations about who’s in charge and who’s not, and who gets what, are difficult, but “the soft side of the science of estate planning is very important” to avoid conflict.
According to a national survey by RBC Wealth Management, two-thirds of givers admit to putting off conversations about family wealth transfers. Only 39% have provided their heirs with guidance or instructions on what to do with their inherited property, including how to spend it, invest it, and donate it to charity.
“If relationships are strained to prevent such discussions, make sure the rationale behind your estate planning decisions is clear in your planning documents and with your estate planning professional,” Philip Hertzberg, principal financial advisor at Team Hunes LLC, said in a blog post.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
