Bob Curtis, 87, and his wife, Sandy, put down over $840,000 to live in a continuing care retirement community (CCRC) known as The Harborside, following the sale of their home three years prior. The couple expected to spend the rest of their lives receiving care at the facility. Not only will these plans never come to fruition, but Bob and Sandy and 200 others may lose most of their investment, due to the CCRC going bankrupt. These situations are becoming more and more common. What’s being done for people like Bob and Sandy, and how can you avoid winding up in a similar situation?
What is a Continuing Care Retirement Community (CCRC)?
CCRCs (sometimes called Lifecare Communities) are a type of retirement community that offers different levels of care as the resident’s needs change. They typically include independent living apartments or cottages, assisted living facilities (with and without memory care), and nursing homes/rehab facilities all in one place. Most CCRCs also provide residents with 24-hour security, social and recreational activities, attractive dining options, housekeeping, transportation, and wellness and fitness programs. However, these perks are not exclusive to CCRCs; many other types of communities, including combo communities that offer both “independent living” and assisted living, or just assisted living, also offer these types of services and activities. And these types of communities typically do not require any sort of large upfront entrance deposit, but rather simply charge a monthly rental/service fee. With these types of communities that only charge a monthly fee, you can sleep easily knowing that you will not lose a huge chunk of your life savings if the community fails and files bankruptcy, or if circumstances in your life or the life of family members change, which of course happens often.
The idea behind CCRCs is attractive to many seniors due to their perceived benefits. As residents progress from independent living to assisted living (with or without memory care) to nursing care within a CCRC, they can ideally continue their existing relationships with their spouse and friends, avoid the stress of multiple moves, and receive the long-term care they need, should it be needed, in the same environment they know and trust. However, on this last point, it is important to note that many CCRCs are not inside of one building but rather sprawled across a huge campus where independent living units are completely separate from the assisted living building, which in turn is completely separate from the nursing home building, so you wind up having to move buildings as your needs increase anyway. If you are truly looking for a CCRC where you can “age in place,” you need to look for one that is self-contained in one single building.
Financial Issues Associated with CCRCs
CCRCs may seem like a great option, and are for some people, especially people who may not have any living family members, but financial issues should be carefully scrutinized before seriously considering any CCRC. Many CCRCs charge very high entrance fees/deposits. And although most CCRC entrance agreements say they will refund the residents or their named beneficiaries up to 90% of that initial investment in the case of a move or death, that refund percentage “promised” could be voided in bankruptcy court, as CCRC residents are almost never classified as secured creditors, so they stand in line behind all the secured creditors, such as lenders who loaned the CCRC enormous amount of money to finance the building of their community and or improvements to their facilities. The loss of hundreds of thousands of dollars from a failed CCRC presents a huge financial burden for most people.
Current Statistics About CCRCs
Here is the current situation with CCRCs, and why you should be careful if you are considering them:
- Forty-one states regulate CCRCs, but only 17 require them to have a reserve fund.
- According to Financial Advisor Magazine, at least 16 CCRCs nationwide have filed for bankruptcy protection just since 2020, with blame being placed on pandemic restrictions, labor shortages, higher wages, a rise in supply costs, and overbuilding of these types of communities. Here in the DC Metro area, new CCRCs are popping up regularly, some with entrance deposits of 1 million to 3 million dollars. At some point, with all the building of these new CCRCs, the supply will likely outpace the demand, leading to more CCRC bankruptcies.
- Almost half of CCRCs surveyed by CARF International, a non-profit organization that accredits health and human services providers, said they were dependent on new residents buying in just to stay afloat. The same CCRC owners said that they lost money last year.
- CCRCs often promise (verbally) partial or full refunds to residents of entrance fees once the resident dies or moves out permanently. However, residents considering a move to a CCRC must read the entrance agreement carefully and should have it reviewed by an attorney experienced with these contracts. Most CCRCs don’t agree to refund entrance fees until a new resident moves into the unit. In some cases, residents have been left with as little as 25 cents on the dollar because of a bankruptcy and the fact that a resident of a CCRC is not a secured creditor in bankruptcy.
Katie Smith Sloan, President and CEO of LeadingAge, speaks in favor of CCRCs and cautions that the situation isn’t as bleak as it may seem. She says, “(w)hile any prospective resident should carefully vet contract terms prior to investing in a CCRC, many robust resident protections exist. Some state regulators provide safeguards that include requiring CCRCs to maintain escrow accounts for entrance fee refunds, debt-service, and operating expenses, and to submit to periodic actuarial and in-depth financial reviews, to protect against possible loss. Moreover, many CCRCs voluntarily engage in these and other fiduciary practices.”
What Happened in the Case of the Curtis Family?
A recent update was published regarding Harborside, the CCRC where Bob and Sandy Curtis hoped to live comfortably for the rest of their lives. In a McKnight’s article from earlier this month, Focus Healthcare Partners offered $80 million to purchase Harborside. A chief judge in the NY district’s bankruptcy court declined to accept the offer unless the buyers also pay off approximately $100 million in entrance-fee refunds owed to residents and the families of deceased residents, so it sounds like Sandy and Bob may be reimbursed after-all, but time will tell.
Don’t Find Yourself in a Similar Situation to the Curtis Family
Those considering buying into a CCRC should take a careful look at the facility’s finances, ideally hiring an independent CPA/auditor, and be sure they know how the money works before they sign on the dotted line. To hopefully avoid a CCRC bankruptcy situation, it is prudent to:
Investigate financial health:
- Ask the CCRC for its audited financial statements and seek help in evaluating them.
- Review financial statements. Ask for detailed financial information including occupancy rates, debt levels, and cash flow to assess the community’s financial stability.
- Look for the CCRC’s credit rating from agencies such as Standard & Poor’s or Moody’s to gauge their financial strength.
- Ask about reserve funds; determine the size of the community’s reserve fund dedicated to covering potential financial emergencies.
- Examine the CCRC’s ownership structure, since problems at a parent company can mean problems for residents.
Analyze the contract terms:
- Understand the conditions under which you can receive a refund of your entrance fee, including percentage returned and potential penalties in case of early departure.
- Review how monthly fees might increase over time and what mechanisms are in place to manage cost fluctuations.
- Check if the contract guarantees specific protections for residents in the event of a bankruptcy, such as priority access to refunds.
Understand state regulations:
- Identify the state agency responsible for regulating CCRCs and check their oversight procedures.
- Find out if your state mandates that CCRCs maintain escrow accounts for entrance fee refunds.
Research the following:
- Reputation and longevity:
- Choose a CCRC with a solid reputation and a long history of operation in the community.
- Community size and occupancy rates:
- Consider the size of the community and its current occupancy rate as indicators of financial stability and viability. Occupancy below 85% can be a cause for concern, unless it’s in a newer community that’s filling up.
- Insurance coverage:
- Investigate whether the CCRC has adequate insurance coverage to protect residents in case of unforeseen circumstances
For more details on what to look out for in CCRC contracts, please ready my article, “Before You Sign a Continuing Care Contract.”
Please also take a look at these two prior articles I have written on failed CCRCs, including one right here in the DC Metro/Northern Virginia area involving one of our area’s biggest CCRC providers, Erickson communities:
The Financial Problems of CCRCs (2017)
Erickson CCRCs Bankruptcy Filing (2009)
Asset Protection Prior to Moving to a CCRC
Too many people move into CCRCs without giving asset protection a second thought. If you are considering moving into a CCRC, to ensure that the potential benefits outweigh the risks, you should always have an experienced Elder Law Attorney such as myself review your CCRC contract prior to providing any financial information to the facility, and you should always give consideration to asset protection prior to moving in because, once you move in, almost every CCRC entrance agreement prohibits you from engaging in any type of gifting or other asset protection without the approval of the CCRC, which approval will typically never be given.
Plan Ahead if You Are Considering a CCRC
It is important to keep in mind that a major drawback of moving into a CCRC is that you almost always sign away your right to do asset protection in connection with obtaining Medicaid and or Veterans pension benefits. This is why you must complete your asset protection planning before moving to a CCRC. The Washington Post article, “Scrutinize any Contract to Avoid Nasty Surprises at Continuing Care Community,” quoted me as follows: “Evan H. Farr, a Fairfax lawyer who specializes in issues facing the elderly, recommends putting any extra assets in an asset protection trust before you move in.”
If you are considering a CCRC, it is important to consider creating the proper type of asset protection trust for you to put your extra assets in before you move into the community. My proprietary Living Trust Plus® Asset Protection Trust protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care. For most elders, the Living Trust Plus is the only form of true asset protection trust because, for purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that protects your assets from being counted by state Medicaid agencies.
To learn more about Living Trust Plus, or if you have not done Long-Term Care Planning, Estate Planning, or Incapacity Planning, or if you are contemplating moving into a CCRC, please call us today to make an appointment:
Elder Law Attorney Fairfax: 703-691-1888
Elder Care Attorney Fredericksburg: 540-479-1435
Estate Planning Attorney Annapolis: 410-372-4444
Medicaid Asset Protection Attorney Rockville: 301-519-8041
Long-Term Care Planning Attorney DC: 202-587-2790
About Evan H Farr, CELA, CAP
