What Happens With a CCRC When You Run Out of Money
When clients ask me to review an agreement to enter a Continuing Care Retirement Community (CCRC), the most frequently asked question is “what happens if I run out of money?”
The issue may be presented in another way such as “what are the major risks?” or “Will I have to move if I run out of funds?” or even “Could my children or my estate have any liability?”
For those unfamiliar with CCRC’s, these are retirement communities that are typically entered by a senior when he or she is living independently. If conditions change and it is necessary to move to another level for care – either assisted living or skilled nursing, the community has on-site the housing and resources to accommodate the change.
CCRC’s are an excellent idea since they can provide the level of support required without the disruption of frequent moves. Also, where one spouse is healthier than the other, the spouse who eventually will need more care can continue to live in the same community, but in a different section of the campus, as the independent spouse. One adult child told me honestly that moving into a CCRC was the best gift his parents ever gave him and saved him from worry. However, just as with any arrangement, there are issues that must be considered and addressed from the beginning.
Usually there is a substantial up-front buy-in followed by monthly charges. Seniors take a physical examination to qualify to enter at the independent living level.
There is more flexibility now in arrangements. For instance, with a higher initial payment, seniors might be guaranteed that some of the initial payment would be returned to their estate on their death. Also, either with higher payment or higher initial monthly fees, residents might be guaranteed that the monthly charge for assisted living or skilled nursing will not exceed the monthly charge in independent living.
A common provision today is for the initial payment to be amortized over a period of time. For instance, depending on the length of stay, the agreement might state that each month the amount that might be refunded would be reduced by a given percentage. This allows seniors who change their minds, or their families if the senior dies soon after entering into the agreement, some assurance that some of the deposit could be returned if they leave within the first few months or years.
Some communities sell an actual real estate interest called a life estate, in the unit that the senior occupies. Some give the right to occupy. In either case, the unit returns to the community on the death of the resident to be resold.
Returning to the first question which is “What happens if I run out of money?”, the answer is somewhat more complicated than might be expected. Agreements most often contain some stipulation described as a guarantee for life.
Here are issues to consider.
- Consider the solvency of the community. Lifetime guarantees are dependent on the fiscal position of the community. For long term well established communities, this may not be a concern but, before entering into any agreement, it is a good idea to explore the solvency of the community, the financing, relationships with other corporations, whether there is a non-profit (sometimes church related) funding source, and experiences of other residents in dealing with the community.
- Gifting is considered a dissipation of assets and may void the lifetime guarantee. Most people think that gifting to family members and others is only an issue for Medicaid. This is not the case. A typical CCRC agreement today will contain language that, if a resident gifts to family or others and is thereby unable to satisfy his or her monthly and other payment obligations, this activity will be considered dissipation of assets and may disqualify the resident from assistance from the community. Provisions like this are understandable since the initial analysis determined whether the resident could afford to live in the community. If residents then routinely gifted their money away, the community would not remain solvent.
- Review lifetime guarantee provisions closely or request legal assistance. Agreements are different. Some provide more protection than others. If you have questions regarding a lifetime guarantee, request legal assistance before signing the documents. With all of these issues addressed before signing, you can relax more comfortably into your new home.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.