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 sixty-five and reckoned with the good fortune bestowed upon me.
Fresh senior citizens in these United States are inundated with information about Social Security, Medicare, and Estate Planning. Silver-haired gents in boxy suits at Residence Inn function rooms dissect the minutiae of Parts A & B. They intone the virtues of revocable trusts. As a person blessed with comprehensive health insurance who’s allergic to any investment more complex than a no-load mutual fund, preparing for old age and beyond loomed unsavory. But after witnessing the chaotic aftermath of two friends who died without wills, I knew the responsible thing to do. So I sucked it up, enrolled in Medicare, and prepared an estate plan.
Friends all know my personal mantra, “It doesn’t cost much to be Paul Fallon.” I don’t have extravagant tastes, buy grown-up toys, or play the horses. Although architects are among the lowest paid professionals, I enjoyed a long run of middle-class income. So it wasn’t a complete surprise to discover that fully vesting my 401K year after year accumulated into a robust Vanguard balance.
The shocker came from real estate. Back in 1992, when most families with young children headed to the suburbs, my wife and I bought an aging four-family in Cambridge. We wanted to raise our children in the city and I salivated over years of renovation.
Life didn’t play out as planned. Our marriage ended; our children grew up and out; I took on housemates to fill the too-big space. Another unplanned reality: Cambridge real estate’s extraordinary appreciation. This was simply dumb luck: the same four-family in Cleveland or Detroit might have bankrupted me. But once renovations were complete and the mortgage retired, the reasonable rents I charge generated plenty of income. They enabled early retirement and middle-age adventures: volunteering in post-earthquake Haiti; bicycling through 48 states. Thank, you, thank you, this old house.
Twenty-nine years on, my pricey real estate deserved careful consideration. I’ve never met anyone who inherited financial independence without becoming seriously damaged in other ways, so I didn’t want to leave the place outright to my children. Yet, I couldn’t sell it to them anywhere near the market rate because a property we purchased on reasonable incomes in 1992 is now worth far more than any salaried person can afford.
Besides, age has radicalized me. I want my largest asset serve a wider purpose than familial enrichment.
The difference between being a ‘have’ and ‘have-not’ in these United States is largely a matter of whether a person owns their house. American homeowners’ equity more than doubled in the seven years between 2012 ($7.78 Trillion) and 2019 ($18.72 Trillion). That’s $57,000 per American. Unfortunately, not everyone gets a slice. Over 115 million citizens have exactly zero equity, and as housing prices continue to accelerate, the chance of them ever becoming homeowners continues to diminish.
My property cannot alleviate our city’s affordable housing crisis, but it can do something transformative for four families. Provide shelter that blooms into economic freedom. Raise them into the middle class. Perhaps even take them beyond.
Left to market forces, that notion is fantasy. The appraising realtor explained that the ‘highest and best economic use’ of my four-family 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. Thus, I would further contribute to Cambridge’s loss of modest residential units, dilute the city’s population density, and reinforce economic stratification. The exact opposite of my objectives.
It took a year to address my ultimate first-world problem of too-valuable real estate. First task: discussions with my children about this unconventional idea. I sounded out their acceptance and gained their agreement. Second: sending an intentionally vague one-page concept to eight local non-profits: universities; bank foundations; developers. I chose to refine my concept with Just-A-Start Corporation, a local housing and service provider with whom I have a thirty-year affiliation. Finally, there was legal language, a friendly realtor, a gifted estate attorney, and details too tedious for a blog post.
The Cliff Notes will suffice.
When I die, or become incapacitated, my properties are bequeathed to Just-A-Start Corporation. My children have a six-month period to purchase them back from JAS 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 green-lit the scheme. In this scenario, my children can choose to return to their childhood home, without the largesse of outright inheritance, while JAS gets a few million to invest in other affordable housing projects. If my children choose not to buy-back the property, JAS 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 are achieved: the bulk of my estate will provide affordable housing that promotes continuity and ownership.
Just-A-Start and I decided to broadcast this novel model of property transfer, (kicked off with a Boston.com article). From JAS’s perspective, our collaboration illustrates their creative approach to providing affordable housing opportunities. For me, it gets to the heart of what the propertied class must do to promote a more equitable world.
In a single generation an aging structure in a middle-class neighborhood has become a multi-million-dollar property along a Tesla-infected street. During the same period, my city’s vanishing middle class makes Cambridge a less diverse, less dynamic place to live. Given the scope of our nation’s inequality, my decision to transfer property in an unconventional way is miniscule. From a radical political positiosn, it is too little too late: I could live thirty years before it comes into effect. Still, it’s one tangible step, and if I get hit by a bus tomorrow, the bequest is in effect.
My plan with JAS is worthwhile. And replicable. Over 25 million baby boomers own our homes, almost half of us have no mortgage. The default action in any estate plan—leave our property to our children—further stratifies wealth. It’s important for folks to consider other ways. Our plan may not be right for you. But if we are serious about living in a just world, those of us whom fortune has blessed have to do the real work. We have to redistribute our wealth.