Considering a refundable entry fee for a senior living community
Many Continuing Care Retirement Communities (CCRC) like Topeka Presbyterian Manor have residency options that include an entrance fee in addition to a monthly fee. A portion of that entry fee is almost always refundable at some point. However, the amount and terms of the refund can vary dramatically.
In general, there are two types of refund options:
1. Declining balance
The total entry fee is gradually amortized by the community during the first few years of residency; once that period of time has passed, no portion of the entry fee is refundable
2. Return-of-capital
Offers a refund of some portion (usually between 50 and 100 percent) of the entry fee if you move out or in the event of death, regardless of how long you live in the community.
Stipulations for the refund
If you choose a refundable entry fee contract, make sure you understand the stipulations for receiving your refund. Here are some questions to ask:
• Does my unit need to be reoccupied before I can receive my refund?
It is common practice within the industry that entry fee refunds are paid out only after the resident’s home or unit has been reoccupied by a new resident. Sometimes there may be a maximum time, such as one or two years, whereby the refund will be paid even if the residence has not been reoccupied. It is generally preferable that a provider set aside funds to pay refunds rather than relying on the resale of the unit.
• How can I be sure I'll receive my refund?
Historically speaking the CCRC industry has a very strong record of paying entry fee refunds, but it is still important to verify the financial viability and track record of the community you are considering. If there is a stipulation that the residential unit must first be reoccupied, then it is important to ask about the level of demand at the community. What is the average turnover time for vacant units? Is there anything that could disrupt demand going forward? Are there strategic plans in plans for being sure the community remains competitive?
• What factors, if any, could affect the amount of my refund?
Generally, if there are any expenses owed to the retirement community at the time you wish to vacate your unit (e.g., health care expenses), that amount will be deducted from your refund before it is paid. For instance, suppose you require healthcare services for an extended number of years, and you run out of money. In this case, rather than asking you to leave the community, the cost of such services could be deducted from your refund. You should also ask how your refund is impacted if pricing changes and the unit you vacate is being offered at a lower rate than you initially paid.
At Topeka Presbyterian Manor, you have two residency plan options: a no upfront fee plan with a monthly accommodation fee or you can choose use a 75/25 refundable entrance fee plan, designed to allow for 75% of the fee to be refunded to you or your estate when you leave the community. The monthly accommodation fee for the 75/25 plan is lower than the option without an up-front fee.
There’s a lot to think about when considering a move to a senior living community and the financial options may sound confusing. At Topeka Presbyterian Manor, we’ll be glad to guide you through the plans and process. Call Danica Loftin at 785-256-0946 or email her at dloftin@pmma.org.
