As older adults explore the vibrant lifestyle and peace of mind offered by life plan communities, also referred to as continuing care retirement communities (CCRCs), one of the top considerations is how to fund the associated costs, particularly if it is an entry fee community.
We recently co-created a free guide, our colleagues at Second Act Financial Services, entitled Funding Your Move to a Life Plan Community (or CCRC): A Helpful Guide (PDF). Below is a brief summary of the new guide, which explains various ways to fund a move to a life plan community as well as some practical guidance on making a financially informed CCRC move.
Understanding the life plan community concept
Life plan communities are a unique senior living option designed for older adults who are seeking a dynamic retirement lifestyle with the reassurance that comes with access to a full continuum of care. This type of senior living community typically features independent living, assisted living, memory care, and skilled nursing care. Residents enjoy a campus-like setting with numerous activities and amenities while having access to various levels of care services, if needed.
Roughly 3 out of 4 life plan communities are entry fee communities, which may be partially or fully refundable to one’s estate, and possibly sooner if the resident vacates the unit. The other approximately 25% of life plan communities operate either on a rental-only basis or an equity (or co-op) ownership model in which you own your home or a share of the community’s corporation, but still pay monthly fees for the community’s services and amenities.
The three main types of life plan communities are:
- Entrance fee: This is a one-time fee paid upon move in that may be fully, partially, or not refundable, depending on your life plan community contract type (see below). This fee can be quite hefty in some communities, reaching the six-figure range. Be sure to understand your contract’s stipulations and requirements for an entry fee refund.
- Equity or co-op: You own the title to your independent living residential unit or have co-op ownership rights. Some equity-based life plan communities do not provide true ownership, but instead allow the resident or the resident’s heirs to share in the potential appreciation in value of the home or apartment when resold.
- Rental: No entry fee is required, other than possibly a nominal community fee.
Types of life plan community contracts
When a new resident moves into a life plan community, they will sign a contract, which specifies their housing selection and how their payment structure will work, including how any necessary care services will be paid for. There are several different contract types that a life plan community might offer:
- Type A (lifecare) contract: Residents pay a higher entry fee and/or monthly service fee but receive comprehensive care services with little to no additional cost in the future. This model provides predictability in long-term care expenses.
- Equalized rate lifecare: A variation on the Type A/lifecare contract in which the cost of care services is standardized, regardless of the type of independent living unit a resident previously occupied.
- Type B (modified) contract: Provides some future care services at a discounted rate or provides a set number of free days in the health care center, if needed.
- Type C (fee-for-service) contract: Offers a lower entry fee and/or monthly service fee but incurs higher costs for care services, if needed, which are charged at market rates.
Funding options for your life plan community move
There are a variety of ways that people who move to a life plan community pay their one-time entry fee (if applicable) and their ongoing monthly service fees. Some of the most common options include:
Selling your existing home: Particularly if moving to an entrance fee community, many residents-to-be use the proceeds from selling their primary residence to cover the community’s fee(s). For those without a home to sell, this might not be an option, making other funding strategies necessary.
Bridge financing: Home equity lines of credit (HELOCs) can be a flexible funding solution, allowing you to move into a CCRC while you wait to sell your existing home. This option provides smaller, interest-only payments and helps you avoid settling for a lower home sale price. Our colleagues at Second Act Financial Services can be a helpful resource to assist with exploring various bridge financing options.
Retirement account withdrawals: While withdrawing from retirement accounts like IRAs or 40(k)s can provide funds to cover a life plan community move, it may lead to significant tax implications. Consulting with an experienced tax advisor and/or financial planner is essential to understand the impact of such withdrawals and avoid unnecessary tax bills.
Sales of securities: Selling stocks, mutual funds, or exchange-traded funds (ETFs) can also provide necessary funds to pay for your CCRC move, but here too, be aware of potential capital gains taxes and the impact on your overall tax rate. An experienced tax advisor and/or financial planner can provide valuable guidance.
Loan against securities: Some financial institutions offer loans using securities as collateral. This can be a quick way to access funds but comes with risks related to market volatility.
Sale of or borrowing from life insurance: If you have life insurance policies that are no longer needed, they often can be sold or exchanged for an annuity or used for long-term care benefits.
Long-term care insurance (LTCi): LTCi policies can help cover a portion of care costs at a life plan community. Understanding the details and benefits of your specific LTCi policy is crucial for maximizing its use.
Veterans’ benefits: A veteran and their spouse may qualify for special benefits like the VA Aid and Attendance program, which can assist with long-term care costs.
Additional considerations for funding a CCRC move
We’ve discussed a number of funding options for those who are thinking of moving to a life plan community. There are a couple of other important financial points to consider when planning how you will pay for your senior living, however, such as:
- Potential tax deductions for life plan community fees: A portion of a CCRC’s entry fees and monthly service fees might be deductible as medical expenses if the fees exceed 7.5% of your adjusted gross income (AGI) and you itemize deductions on your taxes. This is more common with Type A and Type B contracts. Be sure to discuss this possibility with your tax professional. Learn more about the financial considerations surrounding CCRC fee tax deductions.
- Comparing costs: Moving to a CCRC might seem costly, but when compared to maintaining a home, including property taxes, maintenance, and utilities, it could be more affordable than expected, especially if you later require care services.
By myLifeSite