As seniors age, one of the biggest decisions to face is whether to stay in your home or find someplace that can help you care for yourself for the rest of your days, especially if your health declines. Enter CCRCs or Continuing Care Retirement Communities. What are they? And what should you look out for if you’re shopping for one yourself? Listen to find out more.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA®) and Certified Financial Planner™ professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
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Victor Medina: Hey, welcome back to Make It Last. I’m your host Victor Medina. I’m glad that you could join us here today. I have a great topic to share with you. I’m going to talk a little bit about Continuing Care Retirement Communities. It’s a big part of options for seniors as they get a little bit older.
What’s interesting is these facilities exist to help people transition as they get older from living on their own in a home in whatever it was their home for maybe 30 or 40 years, then, transitioning as they get older from independent living through assisted living, and eventually, if they needed nursing home stay.
I’m going to be talking a little bit about what those options are and how they might have different deal terms, like how you can buy in to them and different arrangements.
More and more I’ve got clients coming in asking me on the legal side to review some of that and then on the financial side to help them figure out whether or not it’s something they can afford and whether it’s a good option for them. There is some real practical advice that I can give you about Continuing Care Retirement Communities or CCRCs.
I, actually, wanted to spend the first part of this segment talking about a bill that is in front of the governor to sign, something that has been proposed as legislation. It really relates to some problems that have occurred with Continuing Care Retirement Communities, not so much during the time that somebody’s living in there, but after they pass away.
About a year or so ago there was a little mini exposÈ that was done and that was published in various newspapers around the state, whether it’s the “New Jersey Times” or a bunch of them around there, “Trenton Times.” This was talked about a situation where, well, somebody had felt wronged. It had to do with money that was held by a CCRC.
Let’s first start generally and say CCRCs are attractive to seniors because they offer a place to live without having to worry about moving for health reasons. It is a continuing care. It gives you the spectrum from beginning to end.
There are about 25 of those in New Jersey. They house about 10,000 seniors. That’s according to an Organization of Resident Associations of New Jersey or ORANJ, O‑R‑A‑N‑J. It’s a stat from them.
It’s a group that supports CCRC residents. It’s on the side of the residents. Typically, when seniors move into a CCRC they often pay a large entrance fee which could be several hundred thousand dollars.
In a couple more segments over the course of the show I’ll talk to you about different options the way that’s become constituted. It’s not always the case that they do that but often they do that, and the contracts will say that a percentage of the fee will be returned to the estate when the person dies but not until the unit is reoccupied by a new resident.
That kind of policy made a mess for a gentleman named Ed Nagle of Whitehouse Station for more than six years now. The way the story goes, his mother Terry became a CCRC resident in 2004 and she paid about $270,000. It’s a little higher than $270,000 the moving fee expecting that her estate would receive a 90 percent refund when she died.
She happened to be a grandmother of six, a mother of four and she died in 2010 at the age of 84. Her son Ed was in charge of her estate. When he tried to get back the 90 percent refund he was reminded of the contract and said that his mom’s unit had to be reoccupied first before that money would be returned.
He waited first patiently for a refund for two years. Then after that he got a little bit more involved. He started sending regular inquiries, sending communications. He by his own admission became contentious as his patience was running out. He was a salesman and he offered several times to help them find a new resident, but he was turned down.
He had a friend look at the CCRC for his own mother but when he did that his mom’s unit was never offered. In the meantime, the mother’s estate filed tax returns including the anticipated CCRC refund and it owed $14,820 in estate taxes, which were paid back in 2011. Ed keeps asking the CCRC for updates and the unit remains empty.
Then came what Ed Nagle called a soft extortion. What they said was, “Would you be willing to spend 30 or 40 thousand to renovate the unit your mom occupied?” but the known, to help facilitator enhance the potential to resell or reoccupy the unit. Let’s do that again, right?
The facility said, “Look, are you willing to expand another 30 or 40 thousand dollars to rehab the unit?” Of course, Ed said no. He ended up staging a protest. He hung a banner on the back of his car, which he parked outside of the community whenever it held an open house.
The banner says, “Thinking of moving here? For additional perspectives call…” It included his phone number. The result was mayhem. The CCRC tried to block his banner. They called the police. He moved it off the property, but remained on the street side.
Basically, he created such a stir that the CCRC tried to settle. Five years have passed in this period of time and the unit wasn’t reoccupied. The family reluctantly cut a deal. Rather than taking a 90 percent of the refund, they accepted 63 percent of the refund or just $171,000, about $75,000 less than they were supposed to get originally.
If that wasn’t bad enough, there was more. The lower refund meant that the estate was no longer subject to estate taxes. This was back in a time where New Jersey had an estate tax, and because they had $75,000 less of money coming back it meant that his mom’s estate didn’t owe estate taxes.
In fact, he could apply for a refund, but there’s a catch 22. This is five years later, and there is a three‑year statute of limitations on the refund prepaid through estate taxes, so the family got ripped off.
They got ripped off in a sense that they could never get the estate taxes back that they paid, and of course they didn’t get money back from the CCRC either. They’re hit on both sides. When we come back, we’ll talk a little bit about the legal status of the CCRCs because there’s different laws in different states.
We’ll talk a little bit about the laws in Connecticut. Then we’ll talk about a new upcoming law that was proposed, I mentioned it in the first half of the show. We’ll talk about what that law seeks to do.
Victor: Then we’re going to leave you with some practical advice about what to do if you are considering a CCRC. Stick with us. When we come right back on Make It Last, we’ll continue the discussion on CCRC. Be right back.
Victor: Hey, welcome back to Make It Last, where we’re talking about CCRCs, Continuing Care Retirement Communities. Those are options for seniors that when they’re looking to move out of the responsibilities of dealing with their own home, they’re looking to move to a place that’s going to be able to care for them for the rest of their days, no matter what their care needs are.
They will not have to move again. It’s a very attractive in that way because people who are getting older, we’re worried about what their housing situations are going to be as they continue to age and maybe get a little bit sicker.
They don’t want to be a burden on their family and they don’t necessarily want to move a bunch of times. I shared a story about Ed Nagle and his mom Terry, and the fact that the CCRC had held onto money for about five years.
When they returned the money, when they settled what was going on, it was just for a fraction of the amount of that had been held. The CCRC got to hold some of that money, and because of the mishap that had occurred, the estate ended up paying about $14,000 in taxes that it didn’t otherwise owe and couldn’t get it back because it took so long.
Ed Nagle from that point in time wanted to make sure that this never happen to another family. Then he saw that two other states have legislation already on the books about this. In Connecticut, if you are due a refund from a CCRC, that refund must be provided within three years of a vacancy for any contract that was entered into after October 1st, 2015.
In California as of 2017, the state requires four percent interest to be paid on refunds not returned within 180 days, basically six months after a vacancy. Then six percent after 240 days until the full refund is granted. That’s about an eight‑month period.
After that Ed Nagle reached out to a assemblyman and they wrote a bill. A bill number S3225 which requires CCRCs to give refunds within a year of the vacancy. It’s a reasonable timeframe because it would have helped the situation here about getting the estate tax done.
Even if they had been able to settle it or pay something out, that wouldn’t have run a foul of that three‑year statute of limitations on the estate taxes as happened. That was initially proposed.
Nothing really happened after it. It was reintroduced in the current session as S182 and got more excuses. Nothing really got done until recently. There has been some movement on that.
The result of that is, let’s see what’s the number here, A2747, that’s the assembly bill. We talked a little bit about the way that that works. Unlike with the first one that they tried to do, this one doesn’t have a specific time period.
It’s been unanimously approved by both houses of the legislature, but the rules are in improvement for future CCRC residents and their families.
It’s prospective, it’s going forward. Under this bill, when a resident leaves the CCRC, their resident will be placed on a wait list for refunds and refunds would be given based on that waiting list rather than relying on the resident’s specific unit to be resold.
That takes away the need or the market ability of the unit in terms of penalizing the resident. If there’s a contract to return money, then it’s not dependent on how marketable the place is.
You’re just going to get on a waiting list and when you’ll get your money back. Of course, there’s a downside to that. The downside to that is that the bill doesn’t help seniors that are already living in a CCRC.
As I mentioned before, there’s about 10,000 of them over 25 different CCRCs, and it doesn’t help people that have already moved out. We’re not really sure what those numbers are. It really only helps seniors that are looking to enter into new contracts.
Where does this stand? The answer is nowhere now. I mean the bill has been passed by both houses and it’s on the governor’s desk to be signed. In the interim, we’ve seen the governor go ahead and sign the sports betting law and a few other things, but really no progress on this specific issue.
We’re waiting to see what’s going to happen. The governor could sign, the governor could choose not to sign it. I’m really not sure which direction it’s going to go, but it is important to make sure that we track this.
In this particular state, without this law, there’s basically zero protections on the refund of those monies. I spent a lot of time in the first parts of this show talking about this specific issue because it’s been in the news and we always like to take something topical in the beginning of the show.
We haven’t talked at all about what people should be thinking about when they shop for a CCRC. I’ve got a couple of pieces of advice for you. There are over 2000 CCRCs nationwide and a lot of them have got waiting lists.
Even if you’re not looking just at the 25 in New Jersey, you might be looking at ones in other areas of the country. Maybe it’s closer to family, maybe it’s in a climate that you like, maybe you want to get out of the cold.
I know that when my parents retired, a part of what they were trying to do is make sure that they had a place to go when it was cold. They don’t like being in the cold or spend too much time in there.
With the 2000 CCRCs that are available nationwide, and with those with meaningless… going through and shopping for them are a kind of an important step. To buy in, normally you have to be about 62 or older and healthy enough to live independently.
These are not places that you go to if you already need assisted living. You wouldn’t look at a CCRC initially. You might like the fact that you can go and progress through your care. If your health declines, you’re going to memory care or assisted living.
Most of the time you need independent living or healthy enough to be independent living from the beginning. You’ll live in a house or an apartment or you go to a community dining room for as many meals as you choose.
The CCRC typically provides entertainment, fitness centers, wellness centers, excursion to movies, movie theater, shows, stores, so on and so forth. Many of them also include amenities in the facilities themselves.
It can be a bank, there can be a walking trail, they might have a hair salon, ways for you to be able to stay there so that you…It’s almost like a cruise ship with everything on there except it’s an independent living facility.
They have a pretty good value proposition, but it tends to come at a steep price. I think that the average buy‑in for a CCRC is a $320,000. That’s up three percent from what the numbers that we saw in 2016.
According to an organization called the National Investment Center for Senior Housing and Care as an insert of an industry research group, everything can range, depending on the location, it can range depending on the size of the residency that you’re moving into, whether it’s single or double occupancy.
What your arrangements are for how care is going to be paid for as you get a little bit sicker along the way, it can range from as low as $100,000 to as much as a million dollars I’ve seen. It can vary widely.
You’re also going to pay monthly fees, so that buy‑in doesn’t cover 100 percent of anything. You’re going to pay a monthly fee that averages nationwide about $3,200. Again, that’s up about four and a half, five percent.
That too offer a wide spectrum. You can pay as little as $2,000 to more than $7,000 at some of the higher end CCRCs. They pool those fees to run the community and again, provide the residents with long‑term care.
As you get older and you need more care, you’re basically going to have a few options about how to pay for your progression in your care. You don’t own the residence outright. That entrance fee doesn’t get you that particular residence.
You’re paying a monthly fee for that. You might be paying property taxes, homeowners’ association fees, things like that, but you’re giving a guarantee or a priority access to assisted living sometimes at no extra cost, but sometimes at reduced extra cost.
It depends. You might pay out of pocket at half of the market price depending on the contract and those things can get a little complicated because when they present them to you, you’ll see option A, option B, option C.
They’ll give you a different configurations of how much are you going to pay up front, how much you’re going to pay monthly, initially, and then how is that number going to change. You might think about it this way, the more that you pay a monthly fee at the beginning, perhaps the less that you’ll pay a little bit later.
They might hold that monthly amount flat. If you start paying $4,700 a month in the beginning, and that’s on the higher end of that spectrum, maybe you’ll just pay 4,700 when you go into assisted living. Then go on to skilled nursing. Maybe that’s a little bit more, maybe it’s the same.
After you pass away, as we’ve been talking about, you have a chance to get a refund. Sometimes it’s as much as 90 percent. Other times, where configurations are, you don’t have a refund. You pay a lower amount, maybe 50 percent of the entrance fee, but then it’s theirs.
Then you don’t get anything out of that, so you paid into a particular lifestyle, sort of an insurance contract. When you go to apply for this…actually you know what, let’s do this. I’m going to take a break now. Then I’m going to give you your decision matrix about what to think about if you’re investigating a CCRC.
This will give you an opportunity, I mean, listen to the commercial, please. It’s got a little bit to do with the law firm that I run and maybe your options to work with us.
Victor: In the interim as you’re listening to it, dig around for a piece of paper, a pen. We’re going to go through different decisions that you should be thinking about, different requirements criteria, things like that if you’re investigating a CCRC. Stick with us. We’ll be right back on Make It Last.
Victor: Hey, welcome back to Make It Last. We’ve been talking about CCRCs. I left you with some ways that CCRCs are configured. You can pay a little bit up front and pay a little bit more on a monthly and maybe get none of it back. You can pay a lot more up front, maybe you get 90 percent of it back. You get your different monthly fees.
The whole idea about it is that you’re going to move to one place. Then you’re going to able to get your care in that place for the rest of your life. There are some criterias and decisions that you’re going to need to make.
We’re going to go through with that. The first topic to think about is how are you going to come up with the cash. When you apply to a CCRC your finances are going to have to go onto a disclosure. The CCRC wants to make sure not only can you afford the upfront fee because of course if you don’t pay that, you’re not getting in.
They also want to make sure that you can pay the monthly fees, which are likely to go up three to four percent every year based on what they’re going to claim to be is the cost of inflation for the services. They’re going to use software there to [laughs] analyze your age, your asset, your liability, your life expectancy based on your age, and predict whether or not you’re going to run out of money.
Financial planners say that CCRCs typically expect applicants total assets when they apply to be twice the amount of the entrance fee. Their monthly income to be one and a half or two times the monthly fee. It’s so that people don’t run out of money. If there’s a drawdown from the beginning, they’re going to be able to calculate that and figure out if you’ve got enough money.
Most people finance the entrance fee by selling their home. If they’re going to be moving into a CCRC, they’re not going to need their home any longer. If you can’t sell your home immediately, you might be able to pay the entrance fee using a home equity line of credit. Typically, you can borrow up to about 80 percent of a property’s appraised value using a home equity line of credit.
My personal belief is that you should not be using a reverse mortgage for this type of scenario. I would look to set up a credit line, if you don’t already have one, a couple of months before you go to apply. That way the CCRC is not worried about your ability to qualify for that credit line. You want to make sure that any credit line that you create doesn’t have an early termination fee.
That’s one of the things you’re going to want to avoid. Again the bank doesn’t want to create a credit line that thinks it’s going to be paid off immediately. They don’t make any money on that. You want to go through that process and make sure that there isn’t one on there.
If you’re not going to use a home equity credit line, if you haven’t sold your house already, you might be able to tap into your retirement account for a portion of the entrance fee. Remember, if you take money on a 401(k) or an IRA, in fact, it’s going to be taxable. It’s going to push you on a higher tax bracket. That’s got a dual whammy on it.
On the one hand, it’s going to increase your income tax for that time. Remember, the more you increase your income tax, the more your Medicare premium will be increased in the future.
You’re going to want to be able to budget for that if you’re very conscious of your cash flow. Taking more money out of retirement account two years from now is going to mean more money is taking off Social Security to help pay for your CCRC.
One of the things you are going to want to do, of course, is you are going to want to check this place out. Just as they are scrutinizing your health and your finances, return the favor. Go over there and start to vet this CCRC and see what the situation is like. You want to take a look at the nursing home comparison, the services that are in there. You’re going to look at the assisted living.
Just don’t focus on the amount of great living that’s there, all of the amenities because while you’ll be taking advantage of that, the real reason why you’re looking to move into this place is so that as your care needs progress, you don’t have to move again.
If you’re looking at a place and it doesn’t have a great memory care unit, that’s going to impact whether or not you’re going to want to live there if you develop Alzheimer’s, develop some form of dementia going forward.
The specific kind of care that they’re giving, you want to scrutinize as much the assisted living and the nursing home as you do, the sort of a crucial part of it. Another thing that you’re going to want to take a look at…by the way, and when you do that, I’ll tell you a sneaky way of investigating is look at the interactions amongst the members of the staff, and the staff and the residents.
If the people working there are happy and they look like they’re enjoying what they’re doing, it’s likely the residents themselves are having a great experience. Even if they have an increased care need. You don’t necessarily want to be looking just at the rooms or just at different benefits that are in the assisted living facility.
Look at the interactions, about the human stuff that’s going on there, and that’ll give you a little hint as to what’s going on. One of the things you’re going to want to do also is to look at a disclosure statement including any audited financials. That will help you figure out whether or not the CCRC has the financial resources to provide services, not only now but in the future.
If they have expenses that are greater than their operating income, if they have liabilities that exceed their assets, those are going to be red flags. If numbers aren’t your thing, take the audited financial statements and disclosures to somebody like a lawyer or financial advisor. They will be able to help you review those and tell you what they are like.
Ask for a history of their monthly fees. It’s not unusual for fee increases to exceed inflation by a little bit. You know if inflation’s two and a half, three percent and you see increases of three to four percent, that’s not too bad. If you see a jump of 15 to 20 percent over the last several years, that could be a sign of either poor management, or poor budgeting, or had some form of a major renovation.
What happens if you can’t keep up with the monthly fees? That’s a question you’re going to want to ask. Some CCRCs accept Medicaid and others don’t. Some will allow a drawdown on the refundable entrance fee, that 90 percent. Some of them will allow you to draw off of that. Some of them are nonprofits with the benevolent fund that will help subsidize your care.
You’re going to want to take a look at all of those to make sure that if you happen to run out of money, that’s not going to force you to move out. After that, finally, you will have an opportunity to pick which flavor of the contract that you like.
They’ve got four major ones. They’ve got a life care, what’s known as a Type A contract. It has a higher monthly fee, and a higher entrance fee because it’s going to provide the assisted living without any additional cost.
Then they have a modified contract, what’s called the Type B. Those have a smaller monthly entrance fee. Smaller monthly fees in life care because it doesn’t pay the full cost of future care, but you may get that care at a discount.
Then there’s a fee‑for‑service or what we would call a Type C contract. Rather than the way you have a Type A and Type B, you’ll pay lower fees. You’re going to pay for your healthcare all the cart at market rates when you go up. If you and your spouse need assisted living, your monthly cost could double if you’re going to go into one of those. There’s no right or wrong answer in here.
It really depends on you and your finances, and the way they’re going to vet out over the period of time. You’re going to need to select one of those. Again this is another opportunity where your financial advisor, specifically, somebody who is versed in retirement planning, or if you’re working with a lawyer, if they are a certified Elder Law Attorney or a Sealer.
You can go, by the way, to NELF, nelf.org, to search for a certified Elder Law Attorney in your area. Certified Elder Law Attorneys and a retirement people who have the RICP designation, those folks actually have been tested and have to demonstrate competency on things like housing situations, these Type A, Type B, Type C scenario.
They’re familiar with that if they have either one of those two credentials. Lawyers with the certified elder law designation or retirement financial advisors within a RICP, they’re going to have specific knowledge in that area.
There’s some other stuff. You’re going to look at staff turnover. Take a tour, take a look at, ask them how they are going to meet their future obligations, things like that. You really want to investigate these places very well. This is your opportunity to make a great last decision about where you’re going to live.
Of course, if you have any questions about that, you know that my office handles both of those. I’m a certified Elder Law Attorney. I’ve got a retirement designation in RICP. We help people review these contracts. If it’s not going to be us, it should be somebody with these designations as well.
All right. That’s it for this week’s show. I hope it’s been helpful if you’re investigating the Continuing Care Retirement Community. Again, take a look out to see whether or not Governor Murphy signs that new bill to help protect our seniors, when we’re expecting a refund and whether or not they’re going be able to get it without getting that broom rebranded.
That’s been it for Make It Last where we help you keep your legal ducks in a row and your financial nest egg secure. I’m running out of time. I got to go. See you guys next week. Bye‑bye.