What happens when you run out of money in a CCRC?

When clients ask me to review an agreement to enter a Continuing Care Retirement Community, or 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?”

The answer, as with so many legal issues, is “it depends.” Because it is a legally binding contract, it often 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 might include applying the original

buy-in toward the costs, downsizing, or applying for help to a community benevolent fund. Some CCRC’s now accept Medicaid.

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 guaranteed 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. Medicaid may help but can also complicate the analysis.

••• Here are issues to 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.

For more, listen to radio WCHE 1520 “50+ Planning Ahead” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care, on Wednesdays from 4 to 4:45 p.m.