Homeownership is one of the most effective ways to build wealth and financial stability. Homeowners benefit from stable monthly payments, tax deductions, and increasing equity.
But Black and Hispanic households face unique barriers to achieving homeownership, sustaining it, and reaping its benefits, in part because of more than a century of discrimination and exclusion. These long-standing racial disparities in homeownership have contributed to the overall racial wealth gap: today, the typical Black family has just 15 percent of the wealth the typical white family holds, and the typical Hispanic family has just 20 percent. (We’ve used the term “Hispanic” throughout this post, but we recognize that not every member of this group may identify with this term.)
One factor that’s fueling the trend is barriers to wealth transfers, such as inheritances, across generations. Policymakers have focused on reducing barriers in access to homeownership for people of color, with mixed success, but even when households of color can achieve homeownership, key hurdles limit their ability to pass it on to their heirs.
In a new analysis, we find Black and Hispanic homeowners are less likely than white homeowners to have wills or estate plans. And because most of the typical Black or Hispanic homeowner’s wealth is tied up in their home, they likely don’t have the necessary liquid assets to pay for estate planning. This puts them at risk of having a “tangled property title,” which does not accurately reflect who owns the home and constricts the flow of housing wealth from one generation to the next. Without intervention, this situation could lead to further widening of the racial wealth gap.
Black and Hispanic homeowners are the least likely to have wills and trusts
According to the latest data, 42.4 percent of all real estate owners older than 50 do not have a will or trust. But there is a massive racial disparity in will making. Thirty-five percent of older white homeowners with children do not have a will or trust, compared with 76 percent of Hispanic homeowners and nearly 70 percent of Black homeowners.
Share of homeowners older than 50 who do not have a will or trust, by race or ethnicity
Source: Urban Institute analysis of the 2020 Health and Retirement Study.
Notes: Homeowners" includes all real estate owners, even those who live in nursing homes or elsewhere but still own property. Ninety-seven percent of senior real estate owners are homeowners. The "other" category comes directly from the dataset, but we know that lumping together groups into categories like "other" can obfuscate important racial and ethnic distinctions.
When a homeowner with heirs passes away without a will, their property becomes “heirs’ property,” which is an unstable form of ownership. Assets inherited without a will must go through probate, an expensive and time-consuming legal process through which a court gives children or grandchildren shares in a property. Heirs have to cover the cost of probate, which can be 3 to 10 percent of the estate’s total value, to gain ownership. When a property cannot be physically divided (as is typically the case with urban properties), each heir will be given a fractional ownership stake.
Most older homeowners without wills or trusts have multiple children, so their property will be divided among heirs and create fractional owners. But a child who owns a share of a property cannot fully access the wealth-building benefits of homeownership.
Share of homeowners older than 50 without wills, by number of children, by race or ethnicity
Sources: Urban Institute analysis of the 2020 Health and Retirement Study.
Notes: "Homeowners" includes all real estate owners, even those who live in nursing homes or elsewhere but still own property. Ninety-seven percent of senior real estate owners are homeowners. The "other" category comes directly from the dataset, but we know that lumping together groups into categories like "other" can obfuscate important racial and ethnic distinctions.
Without clear and full title to the home, heir-owners are ineligible for many loan products, including commercial loans and government-backed loans where property is the collateral. Heir-owners face barriers to financing repairs and updates; miss out on tax exemptions and relief programs, which can lead to tax foreclosure; and are vulnerable to partition and forced sale of property to speculators and developers.
A growing body of research finds that heirs’ property is disproportionately concentrated in the Black Belt South and among people of color, particularly Black people. Once an heir has inherited an interest in a property with a tangled or unclear title, it can be difficult—nearly impossible—to get it out of that status. But estate planning is a clear way to prevent the creation of heirs’ property in the first place.
Families of color face unique barriers to estate planning
There are several reasons that millions of families, especially families of color, may not have a will, including lack of knowledge about the importance of estate planning or the belief that they do not have enough assets to merit one, discomfort engaging with the legal system, and a lack of trust that the legal system will protect them because of historical mistreatment at the hands of the law or even a cultural desire to leave land to multiple heirs as a communal asset.
Another potential explanation for these racial disparities is that legal services are expensive. Creating a legally binding will can cost between $500 and $1,500. Data show wide racial gaps in the share of older homeowners without wills that have enough in liquid assets to cover the costs of estate planning.
Share of homeowners older than 50 without a will
Source: Urban Institute analysis of the 2020 Health and Retirement Study.
Notes: Liquid assets include the total that a household has in checking accounts, savings accounts, money market funds, stocks, and stock mutual funds. "Homeowners" includes all real estate owners, even those who live in nursing homes or elsewhere but still own property. Ninety-seven percent of senior real estate owners are homeowners. The "other" category comes directly from the dataset, but we know that lumping together groups into categories like "other" can obfuscate important racial and ethnic distinctions.
More than 60 percent of older Black and Hispanic homeowners without wills do not have even $500 in liquid wealth, meaning that most of these homeowners cannot buffer the up-front costs to create a will without extracting their home equity or from other nonliquid assets. Meanwhile, 27 percent of white homeowners without wills have less than $500 in liquid assets. There is a massive racial disparity in households’ ability to pay for estate planning, even among the homeowners who are most at risk of transferring assets without a will.
Making estate planning more accessible is critical to reducing the wealth gap
There is already legislation on the table—and passed in several states—to make existing heirs’ property less vulnerable to speculators and developers. But as the country’s population ages and more homeowners reach retirement and end-of-life planning, we could see a significant increase in heirs’ properties, especially among Black and Hispanic homeowners.
Two steps could reduce barriers to estate planning.
- Authorize state funding for counseling and pro bono legal assistance. The up-front costs of estate planning are high, especially for homeowners of color. To help all families leave a legacy for the next generation, federal policymakers could authorize funding through states to provide financial counseling and pro bono legal assistance to property owners without wills who lack liquidity or financial assets to buffer the costs of estate planning. This would give homeowners agency over what happens to their assets in the future and would be a more cost-effective strategy than only investing in resolution.
- Engage community partners to build trust. The people most in need of estate planning services may be hesitant to seek them out, even if the financial barriers are diminished. The federal government could require legal services providers that receive government assistance to provide low-cost or pro bono services to work with trusted community partners to build cultural competency, establish credibility, and best reach those in need.
Today, millions of older homeowners do not have wills, and a disproportionately high share of older Hispanic and Black homeowners lack a formal estate plan. Policymakers have an opportunity to tackle this problem and reduce racial and ethnic homeownership and wealth gaps for generations to come.
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