What hap­pens when you run out of money?

Daily Local News (West Chester, PA) - - BUSINESS - Janet Col­li­ton Colum­nist

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?”

Be­cause it is a con­tract, it de­pends on what the con­tract says. 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 health con­di­tions re­quire it, the res­i­dent might move on-site to per­sonal care or skilled nurs­ing within the com­mu­nity.

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.

Al­most al­ways a rep­utable CCRC man­age­ment takes into ac­count what would hap­pen if the res­i­dent be­comes un­able to pay the monthly fee. This could in­clude ap­ply­ing the orig­i­nal buy-in to­ward the costs, down­siz­ing, or ap­ply­ing for help to a com­mu­nity benev­o­lent fund.

Of­ten there is a size­able up-front buy-in fol­lowed by monthly charges.

There may be sev­eral choices. For in­stance, with a higher ini­tial pay­ment, se­niors might be guaran-

teed that some of the ini­tial pay­ment would be re­turned to their es­tate on their death. There may be a guar­an­tee that the monthly charge for per­sonal care 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 “What hap­pens if I run out of money,” the an­swer is some­what more com­pli­cated than might be ex­pected. Agree­ments of­ten con­tain some stip­u­la­tion de­scribed as a guar­an­tee for life. More re­cently more CCRC’s have also ob­tained ap­proval for Med­i­caid beds in skilled nurs­ing. This may help but can also com­pli­cate the anal­y­sis.

Here are is­sues to think about.

• Con­sider the sta­bil­ity of the com­mu­nity. Life­time guar­an­tees may be 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. Ac­tu­ally, a typ­i­cal CCRC agree­ment will con­tain lan­guage that, if a res­i­dent gifts and is thereby un­able to sat­isfy his or her pay­ment obli­ga­tions, this ac­tiv­ity will be con­sid­ered dis­si­pa­tion of as­sets and could dis­qual­ify the res­i­dent from as­sis­tance from the com­mu­nity. This may be un­der­stand­able since if res­i­dents rou­tinely gifted their money away, the com­mu­nity might not re­main sol­vent.

• Make sure you un­der­stand the life­time guar­an­tee. Agree­ments are dif­fer­ent. Some pro­vide more pro­tec­tion than oth­ers. If you have ques­tions, re­quest le­gal as­sis­tance be­fore sign­ing the doc­u­ments. With all of these is­sues ad­dressed be­fore sign­ing, you can re­lax more com­fort­ably in your new home.

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