A recession is coming and many of us are bracing for what’s next.
Nearly 70% of Americans are concerned about market downturn, and individuals are learning they need to prepare for their households for next steps, including updating their estate plans.
Sabine Franco, estate attorney and founder of The Ambitious Legacy Firm says everyone needs to preserve their assets in a time of economic uncertainty, especially the Black community.
“Recessions can mainly affect your portfolio or put you at risk for job loss, prioritizing a life insurance policy into your estate plan is a great way to plan for any potential losses and to set your family up for success regardless of where the economy is at,” Franco shared with Essence.
Black households are especially financially vulnerable in the event of a sudden death in the family in the time of a recession.
In 2021 it was found that 33% of Americans have a will have wills, with 27.5% of Black Americans reporting an estate plan being in place.
Blavity pointed out that because of this disparity, Black Americans are missing out on a significant wealth transfer. It’s estimated that $68 trillion will be funneled in U.S. households to heirs.
Franco points out that even if households aren’t raking in millions, a plan should still be in place to mitigate significant loss in times of significant economic change. She recently sat down with Essence to share her insight on estate planning in a recession.
1. Understand that developing a will and trust is important for everyone, even those who may not have many assets.
When picturing estate planning, people usually envision wealthy investors or a family with palatial properties. However, it’s crucial for low-income and middle class households to understand the importance of setting a will.
“Developing a will or trust acts as a vehicle that helps loved ones with the many issues that arise in the future once someone passes away,” Franco explains. “This vehicle outlines funeral costs, burial costs, any tax issues that may affect the family, provide a supplement for the income they had, and give the next generation a leg up. Including a life insurance policy is a great opportunity to leave a larger inheritance that may not have been built over your lifetime. Having an estate plan can alleviate future conflict with your family, you can get farther together than alone, but having a plan can ensure the family is aligned in your legacy and that what you built in your lifetime will not go to waste.”
2. Take some key steps to assess assets and mitigate investment risk to prevent loss.
Before planning for what’s next it’s important to assess your current financial situation.
“When you build wealth there is a big responsibility around staying educated on what investments work best for you,” Franco said. “Know what impacts your stocks and how economic changes affect your investments. Avoid blindly following how your investments change, and instead, find out why. Especially with retirement accounts, stay up to date on how your money is moving. Try to educate yourself on opportunities that are less risky and help you reach your goals. It is important for people to do their homework and to take an active role in how their assets fluctuate in value and how they can maximize growth as a result. Diversify after you have spent some time growing your portfolio and become more familiar with how to manage your wealth. Many people may feel daunted by the education around building wealth, but it is possible for anyone it just takes reading and research to understand.”
3. Put tools in place to help evaluate spending.
It can be tough to develop financial behavior, especially if there isn’t a system in place to help track existing patterns. Franco suggests using technlogy to help identify what’s going in and out of the household ahead of developing an estate plan.
“Find a tool that tracks the categories of what you are spending your money on, like Mint or other tools that banking institutions have now,” Franco said. “I recently did this with my husband and we found that we were spending $2000 each on meals and eating out. We were shocked to see that, and it was an eye-opener. We decided to reallocate those funds to savings or investing. These tools can help you find ways to have more cash on hand to become more liquid, especially with talks of a recession. More cash and better budgeting to know where your money is going will allow you to be more flexible. Tiffany Aliche refers to this as a noodle budget, referring to the infamously affordable ramen noodles, as the bare essentials you would need in your life to meet your budget.”
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