For an estate plan to work as planned, it must be well thought out and encompass much more than simply deciding what will happen to your estate assets when you are gone. The most amazingly well drafted estate plan will fail, however, if that plan is not reviewed and updated on a regular basis and upon the occurrence of certain special events. One factor that should call for a review of your estate plan, but that people rarely realize is important, is gentrification. At this point you may be wondering how gentrification affects your estate plan? It can do so in a number of ways. The extent to which it impacts your specific estate plan can only be determined by consulting with your California estate planning attorney; however, a general overview of how gentrification can impact your estate plan should be a good place to start.
What Is Gentrification?
Almost all large cities across the United States have a similar history with regard to the rise and fall of the downtown area. When the city first began to grow, anywhere from about 100 to over 200 years ago, the downtown area was the bustling core of the city. The wealthy merchants all lived close to the city center. For most large cities, industrial revolution caused a shift in demographics within the city as “urban flight” took place. Anyone with the money to do so started moving farther and farther away from the city center. Suburbs became the place to live if you had the money to do so. Consequently, urban decay took root in almost all major cities during the middle part of the 20th century. Downtown became synonymous with poverty and dilapidated property.
The, the tide turned again in many large cities, toward the end of the 20th century and continues to change in many others. “Gentrification” became popular. Gentrification occurs when wealthy residents and/or investors come in and start buying property in an urban area and renovating the property. Consequently, the entire area begins to change, for the better. At least the property values increase.
Why Does Gentrification Require You to Review Your Estate Plan?
For the average person, their most valuable asset is their home. The average home will only appreciate about three to five percent per year, assuming it is in an area where the property values are appreciating at all. At that rate, your home’s value barely keeps up with inflation. If, however, you live in an area that is experiencing gentrification, the value of your home could increase significantly in a very short period of time. In fact, it is not unheard of for home values to increase 100 percent –or more – over the course of a few short years. If you have a home that you believe is worth $50,000, but has increased in value as a result of gentrification to over $100,000, that means you have an additional $50,000, or more, in equity in the property. If you also own a small business in the neighborhood, the same increase in value is likely for that property as well. While this is certainly good news, it can actually create problems as well within your estate plan.
First, you need to know the value of all your assets in order to decide what happens to them when you are gone. Your beneficiary choices, however, are not the only estate planning issue. Medicaid planning can be particularly crucial if the value of your home and/or business has increased significantly. It would be a shame to find out you have an additional $100,000 of value in your home and business because of gentrification, only to lose it to the Med-Cal eligibility requirements. Finally, the additional equity in your home and/or business could also be vulnerable to creditors, if you have any, unless you take steps to include asset protection strategies in your estate plan.
The bottom line is that while gentrification can provide you with unexpected assets, those assets can also be at risk if you fail to consider how they fit into your estate plan.
For additional information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding how gentrification will impact your estate plan, consult with an experienced California estate planning attorney. Contact the Collins Law Firm by calling (310) 677-9787 to reserve for a Free Estate Planning Workshop.