A Continuing Care Retirement Community (CCRC) is an age-restricted community where, in most cases, incoming residents must be at least age 55 or older. The facilities offer independent-living units, assisted living units, and skilled nursing all in the same building or on the same campus. In addition to paying a sizable entrance fee, residents pay a monthly fee that typically increases as the residents need more care.
Many seniors are choosing to move to CCRCs in their retirement years, due to the option to have more care available if and when they need it. Unfortunately, many who choose CCRCs aren’t aware of the financial risks they are taking when they sign a contract and move into one.
Let’s take for example, Devonshire at PGA National in Palm Beach Gardens, FL, a ritzy CCRC that touts a “superb health and racquet club” and “40,000 square-foot international spa.” Sounds like a great place to retire, doesn’t it? It was until it was hit with a $158 million foreclosure suit and residents were faced with the reality that they may never see their partially refundable entrance fees that stretched into the seven figures. Since this happened five years ago, Devonshire has reopened, but who knows if it could happen again, and what the consequences could be for residents.
If a CCRC is in a situation similar to Devonshire, and becomes forced into bankruptcy, residents may be considered unsecured creditors and could lose all of their refundable entrance fees. Or the facility may be bought out of bankruptcy by a new owner, resulting in service changes and other upheaval for residents. This happened not too long ago in our own back yard, when Erickson, a major developer and manager of CCRCs, filed for bankruptcy. Even though Erickson was bought out and emerged from bankruptcy, it impacted residents of Greenspring Village in Springfield, Virginia; Ashby Ponds in Ashburn, Virginia; and Riderwoodin Silver Spring, Maryland. Read our earlier blog post for more details.
Non-Profit CCRCs are Vulnerable to Financial Strain
CCRCs promise lifetime care to their residents. Depending on the contract, this can be a huge financial commitment on the part of the facility, as a resident’s need for care often increases as he or she gets older. Before moving into a CCRC, clients must ask: Can this CCRC fulfill its financial promise? In many cases, the facilities cannot.
A recent article in Senior Housing Forum discusses the challenges of non-profit CCRCs, and how entrance fee financed tax exempt CCRCs are conflicted about capital. According to the article, many non-profit CCRCs use entrance fees as at-risk equity capital to secure debt. On the other hand, CCRCs issue contracts promising residents lifetime residency in return for their entrance fees. In accounting lingo, this is “double counting,” and it could prove to be detrimental for residents.
Residents have largely been kept in the dark about what happens to their entrance fees, so despite their sizable financial investment in entrance fees, residents are not owners and have no say in the use and distribution of the funds. According to the article, the lack of financial viability and the presence of impaired balance sheets makes many non-profit CCRCs, “a scandal waiting to happen” and prospective residents should beware!
Asking the Right Questions
Many prospective CCRC residents fail to ask the right questions about the financial status of the CCRC, putting them at risk of losing their investment should the CCRC go bankrupt. Specialized financial advocates, such as myself, can be an invaluable resource to clients considering moving to CCRCs, as they can help clients assess a CCRC’s finances and ensure that clients understand the financial risks they’re taking.
Still considering a CCRC? These are things to inquire about:
- Occupancy Rate. Occupancy below 85% “can be a cause for concern, unless it’s in a newer community that’s filling up,” says Stephen Maag, director of residential communities at LeadingAge, an association of nonprofit senior care providers. Some Erickson CCRCs, for example, had occupancy rates between 60% and 70% at the time of the company’s bankruptcy filing, according to court documents.
- Ask the CCRC for its audited financial statements, and seek help in evaluating them from a financial advocate, such as myself. Some red flags: expenses that are greater than operating income, or liabilities that exceed assets. CARF International, which provides accreditation to CCRCs, also has a consumer guide to understanding CCRC finances at www.carf.org.
- CCRCs are regulated by the states. However, only a few states (among them, Arizona, New York, California, and Texas) require that CCRCs perform an actuarial study to analyze risk. So, it’s up to you to inquire about risk factors, including the CCRC’s resources, its obligations to current residents (if the CCRC promises lifetime care to all residents, can it make good on that promise even if health care costs are higher than expected?), pricing (is the current pricing sufficient to meet future obligations?), and cash flow (sources and expected uses of cash).
- Prospective residents should examine the CCRC’s ownership structure, since problems at a parent company can mean problems for residents. In a 2010 review of CCRCs, the U.S. Senate Aging Committee found that many parent organizations are “represented by a complex organizational maze” of for-profit and nonprofit entities. If the CCRC has a large parent company, speak with management and residents, and check out its annual report for details on its activities and future plans.
- Before signing a contract, ask about the process for transferring to the next level of care. Another key question: will an assisted-living or skilled-nursing bed be available when you need it? Ask about the process for moving to a nearby facility if the nursing facility fills up and how any extra cost would be covered. And read the occupancy agreement (or have someone such as myself review it) to ensure that the agreement actually says what the marketing person is telling you.
- To get a sense of what life is really like at a CCRC, make several unannounced visits and have a few random meals there. Talk to current residents about their activities and their relationships with each other as well as with management and staff.
- Finally, if a CCRC encounters financial problems, you should make sure you understand what the impact on you will be. These are questions to ask before, not after, financial problems arise.
To ensure that the potential benefits outweigh the risks, I cannot reiterate enough that you should always have an experienced elder law attorney/financial advisor, such as myself review your CCRC contract prior to signing it.
Considering a CCRC? Asset Protection is Still of Utmost Importance.
Far too many people move into CCRCs without giving asset protection a second thought. If you are considering moving into a CCRC, it behooves you to not just have me review the contract, but to also have me create the proper type of asset protection trust for you to put your extra assets in before you move in to the community. What is the proper type of asset protection trust? It’s my proprietary Living Trust Plus™ Asset Protection Trust — the trust that protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care. For most Americans, the Living Trust Plus™ is the only form of true asset protection trust because, for purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies. Read more about the LTP here.
If you’re a client or potential client who would like more information about the Living Trust Plus™, click here to register for one of our upcoming informational seminars. If you cannot make it to one of our monthly seminars and would like to learn more about Living Trust Plus™ or if you have not done Long-Term Care Planning, Estate Planning or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call the Farr Law Firm to make an appointment for a no-cost initial consultation:
Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797