What is our responsibility — to ourselves, our family and our community — for the assets we have accumulated during our lives?
I confronted this question last year when I turned 65. I’m a healthy guy. Senility and death seemed decades away, so I tossed invitations to seminars about Social Security, Medicare and estate planning in the trash. But when two friends died suddenly, both without wills, and I witnessed the burden their lack of planning put on others, I decided to get my affairs in order.
After taking a trio of seminars hosted by estate attorneys in hotel function rooms, I was convinced that the usual estate plan strategy ― transfer assets to a trust and leave everything to your children ― didn’t reflect my values. My two children are taken care of. They’ve had enough advantages to pursue careers they love and live comfortably without debt. An estate windfall would mean financial independence, which seems to me like a dubious gift, as I’ve never met anyone who inherited a life of ease without becoming seriously damaged in other ways.
My estate is not large — nowhere near the richest 1% — though my assets provide steady income. Back in 1992, when most families with young children headed to the suburbs, my wife and I wanted to raise our children in the city. We bought an aging four-family home in Cambridge, Massachusetts. We weren’t seeking such a large property, but as Jimmy Stewart says in “It’s a Wonderful Life,” “we couldn’t afford anything smaller.” We became homeowners and landlords. And as an architect who’s a bit handy, I found the prospect of endless renovation also appealing.
One prospect we never entertained was that the house would make us rich. This was simply pure luck. The same building in 1990s Cleveland or Detroit might have bankrupted me, whereas appreciation in Cambridge proved to be robust. The years passed. Our children grew up. Our marriage ended. Renovations were completed. Mortgages retired. Long-term tenants’ reasonable rent provided enough income for early retirement. Middle-age adventures included reconstructing post-earthquake Haiti and bicycling through 48 states. All thanks to the economic security provided by this old house.
Although I didn’t want to leave my property to my children outright, I couldn’t sell it to them anywhere near market rate either. The Victorian behemoth that a couple with reasonable incomes could purchase in 1992 is now worth far more than a mere salaried person can afford. More importantly, I want my largest asset to serve a wider purpose beyond familial enrichment.
The difference between being a “have” and “have not” in the United States is largely a matter of home ownership. American homeowners’ equity more than doubled between 2012 and 2019 (from $7.78 trillion to $18.72 trillion). That’s more than $57,000 per American ― more than the average annual median income. Unfortunately, our nation’s home appreciation is not equally distributed. In fact, the distribution closely mirrors our nation’s wealth gap. More 115 million Americans have exactly zero equity. Meanwhile, as the COVID-19 pandemic accelerates real estate prices, the chance of them ever becoming homeowners continues to diminish.
One four-family house cannot alleviate my city’s affordable housing crisis, let alone our nation’s. But it can be transformative for four families. It can provide shelter that blossoms into economic freedom. It can raise renters into the middle class.
Left to the private market, my desire to increase home ownership is a fantasy. An appraising realtor explained that the “highest and best economic use” of my 124-year-old building would be for a developer to purchase, gut and renovate it into a pair of single-family townhouses, each of which would sell for several million dollars. But that would further the loss of modest residential units, dilute Cambridge’s population density and reinforce economic stratification ― the exact opposite of my objective.
It took time to address my problem of having too-valuable real estate. First, I discussed the unconventional idea with my children and obtained their agreement. Second, I sent an intentionally vague proposal request to eight local nonprofits, including universities, bank foundations and developers. I chose to refine my concept with Just-A-Start Corporation, a Cambridge-based nonprofit housing and service provider. Finally, there was legal language, a friendly realtor, a gifted estate attorney and details too weedy for HuffPost.
A broad outline will suffice.
When I die or become incapacitated, my building will be bequeathed to Just-A-Start Corporation. My children have a six-month period to purchase it back at 90% of appraised value, with a proportionate down payment (roughly equal to their direct inheritance) and the remainder financeable through a local bank who’s already greenlighted the scheme. In this scenario, my children can choose to return to their childhood home albeit without the largesse of outright inheritance, while Just-A-Start gets a few million to invest in affordable housing projects elsewhere.
If my children choose not to buy back the property, Just-A-Start will select four families to kick off a revolving ownership program that is purposefully more generous than most affordable arrangements, as the owner’s appreciation is sizable and ownership can be handed down through generations. Either way, my dual objectives will be achieved: The bulk of my estate will provide affordable housing that promotes continuity and ownership.
Given the scope of our nation’s wealth gap, my decision to transfer property in an unconventional way may appear miniscule. But more than 25 million of us baby boomers own our homes, and almost half of us have no mortgage. Even a minuscule action, multiplied millions of times, can reshape our world.
Giving away our most prized asset — our home — to people we don’t even know may seem radical. I argue that it is fundamentally conservative: the preservation of private property. The twist is in enlarging the pool of Americans who receive the privileges that home ownership affords.
From a radical politic/redistribution perspective, my plan is too little too late: I could live another 30 years before it goes into effect. I cannot argue against that. However, it is one tangible step. And if I get hit by a bus tomorrow, my bequest stands.
I’m not advocating my particular plan to anyone: Every family situation is different, and every estate plan deserves to be different. What I am advocating is that we question the default actions of traditional estate plans that minimize taxes and leave real estate to our children. These are foundational elements in our nation’s wealth gap that exacerbate economic inequality. We must consider other ways. If we are serious about living in a just world, those of us who’ve been blessed with fortune have to do real work. We have to redistribute our wealth.
Paul E. Fallon is the author of “Architecture by Moonlight: Rebuilding Haiti, Redrafting a Life,” as well as “How Will We Live Tomorrow?” which chronicles folks’ response to that question during his 20,000-mile bicycle trip across America. Paul’s blog, www.theawkwardpose.com, explores how to “seek balance in a world of opposing tension.”