Most continuing care retirement communities, often referred to as CCRCs or “life plan communities,” require an entry fee upon entry. CCRC entry fees are usually refundable to the resident or the resident’s heirs in some form. Traditional CCRC entry fee refunds operate on a declining basis. In other words, the entry fee is refundable on a declining scale over the first few years of occupancy. After such time there is no remaining entry fee refund. However, many life plan communities also offer entry fee refunds that do not decline. For example, if the entry fee is 80% refundable then it is always 80% refundable, no matter how long the resident lives in the retirement community.
The trade-off between a CCRC entry fee refund and a traditional, declining balance refund is that the entry fee for the refundable contract will be higher than it would be for the same residence under the traditional contract.
So the question becomes whether to pay the higher entry fee and get a refund later (either if the resident moves or to the family at death) or choose the lower priced traditional entry fee plan and keep the difference. While there are many variables that would ultimately determine which option works out better financially, in general the shorter the time frame the better the refundable contract will look. Why? Because if a resident instead goes with the traditional contract and keeps the difference in their own savings or investment account, it has less time to grow and make up (or exceed) the difference. It’s simply a time-value of money calculation.
CCRC entry fee refunds may still decline to a point
Under a traditional, declining balance contract, the entry fee refund could amortize (decline) by 25 percent per year for the first four years, for example. In this case, there is no remaining refund available after four years. (The amortization time frame varies from one community to another.)
In the case of CCRC entry fee refunds, the entry fee may still amortizes over the first few years but never declines below the refundable amount. For example, a 50 percent refundable contract might amortize 2% per month for 25 months, for a total of 50 percent. The other 50 percent is available to the resident no matter how long they live in the community. This means that if the resident were to move out (or in the event of death) during the first few years then the refund would could actually be more than 50 percent during those years.
If you or a loved one is considering a moving to a CCRC with a refundable entry fee contract it is important to be very clear on what the stipulations are for receiving such a refund. For example, the residential unit have to be re-occupied before the refund will be paid? If so, do monthly fees continue during that period of time? Also, are there certain factors that could impact the amount of the refund? Understanding these details can help you make a better-informed decision.
Brad Breeding is president and co-founder of myLifeSite, a North Carolina company that develops web-based resources designed to help families make better-informed decisions when considering a continuing care retirement community (CCRC) or lifecare community.