What types of contracts do senior living communities offer?
Various contracts come with various fees, and almost every senior living community requires payment of a one-time, non-refundable community fee and monthly service fees.
What are the contracts?
Entrance Fee Contracts
Ordinarily, Life Plan communities offer entrance fee contracts with a couple of variations:
Traditional
The required entrance fee is refundable according to an amortization plan. The amount of refundability amortizes to zero over a short period — e.g., five years — which is specified in the residency contract.
Refundable
The required entrance fee is partially refundable to the resident or resident’s estate on leaving the community. Levels of refundability vary, with 50%, 80% and 90% being the most common. When several refundability levels are offered on the residence you’re interested in, the entrance fees are adjusted accordingly: a lower entrance fee yields a lower rate of refundability; a higher entrance fee refunds more.
Benefits of Entrance Fee Contracts
For many, these two benefits make an entrance fee contract an especially appealing choice:
The Non-Profit Promise
In a non-profit senior living community, the entrance fee is the basis for the community’s promise: If a resident’s financial resources are depleted, through no fault of their own, the community will not ask the resident to vacate. The promise is a residence for life.
The Priority-Access-to-Lower-Cost Care Benefit
Life Plan communities with entrance fees provide less costly access to higher levels of care. Independent living residents who have paid an entrance fee (regardless of its refundability level) will pay less for care (assisted living or residential living, memory care, or skilled nursing) than those who enter care directly. Independent living residents will have priority access and pay discounted rates for such care. Those who aren’t independent living residents will pay street or market rates — and may need to wait for a care-centric residence to become available.
The Lease Contract
While there may be a move-in fee required, it’s much less than an entrance fee. Consequently, because their investments remain largely untouched when they move to the community (because they don’t need to pay a large entrance fee), some prefer the flexibility of a lease contract, with only a monthly service fee to pay.
Special considerations for lease contract communities include:
Monthly Costs
For comparable residences under a lease contract vs. an entrance fee contract, you can expect the monthly service fee to be higher on the first and lower on the latter.
Long-Term Questions
The lease contract provides no assurances that you’ll be able to stay in the community if you deplete your financial resources through no fault of your own — in contrast to the non-profit promise described above.
No Savings on Care
If you ever need higher levels of care (e.g., assisted living or residential living, memory care, or skilled nursing) in a lease community, and if the community offers the care you need, you’ll have priority access to it over the general public. But that care won’t be discounted; you’ll pay street or market rates. For discounted care, you’ll need to live in an entrance fee community.
The Equity Contract
Rarely available in senior living, an equity contract makes you the owner of your residence. You may sell your residence when you wish or include it in your estate to be sold after your death.
Realtor Assistance
You’re likely to find licensed Realtors on staff to assist you or your family in the sale of your residence when needed.
Healthcare Benefits
Equity contracts frequently offer credits or discounts for healthcare provided in the community. Ask for details when you visit.
Investment Growth
Real estate value commonly increases over time, and the growth of your residence’s worth is a financial benefit that can compare favorably with a refundable entrance fee.
Choose Community Over Contract
Contracts are complex tools senior living communities rely on to maintain financial viability and protect their ability to serve their residents. For that reason, communities only accept those who can afford their fees.
Depending on your financial situation and age, you may prefer one type of contract over others. But when weighing the choices, follow your heart, too. The pros and cons of various contracts are important — and so are the many other factors that contribute to deciding on the right place for you for the rest of your life.