Before You Sign a Continuing Care Contract

Continuing Care Retirement Communities (CCRC), also known as Life Care Communities, offer older adults a spectrum of services and care facilities, typically starting with independent living arrangements, then advancing to assisted living, and then progressing ultimately to nursing home care. In CRCCs, the shelter and services are offered under a contract that lasts for a period of more than one year, usually for life.

Seniors in CCRCs typically enjoy amenities such as libraries, golf courses, and elegant dining areas while they’re healthy and can transition to assisted living and skilled nursing care when needed. The fact that CCRCs offer multiple levels of care within a single community is a very attractive selling point for some seniors, but transitions between the levels of care and other contract provisions, including applying for Medicaid when transitioning to skilled nursing care, have been a major source of tension and lawsuits between residents and providers.

For example, Peter and Hazel Yezzi of Endwell, NY, signed a contract with Good Shepherd CCRC, that required them to spend down their own resources before they applied for Medicaid. When Mrs. Yezzi had to move to the CCRC’s nursing home, she transferred some of her assets to her husband (allowed under state Medicaid law) before applying for Medicaid. The CCRC refused to accept the Medicaid payments and sued the Yezzis, claiming breach of contract and fraudulent transfer. The Yezzis argued that they had the legal right to apply for Medicaid.

The New York Supreme Court granted judgment to the CCRC, holding that while Mrs. Yezzi had the right to apply for Medicaid, she breached the CCRC contract in doing so before spending down all of their assets. According to the court, to “allow the Yezzis to breach their agreement with [the CCRC], would upend the financial model upon which [the CCRC] was created and authorized.” The court also ruled that the transfer from Mrs. Yezzi to Mr. Yezzi was a fraudulent conveyance and the assets must be returned to Mrs. Yezzi’s estate.

The Yezzi situation is not the only thing that could happen if you fail to scrutinize a CCRC contract before signing it. What if you sign a contract and the CCRC goes bankrupt? A few years ago, Erickson, a major developer and manager of CCRCs for senior citizens, filed for bankruptcy. If a CCRC is forced into bankruptcy, any deposit a resident may have made could be lost. Or the facility may be bought out of bankruptcy by a new owner, resulting in service changes and other upheaval for residents. Baltimore–based Erickson, now called Erickson Living, emerged from bankruptcy with a new owner in 2010, which impacted residents of Greenspring Village in Springfield, Virginia; Ashby Ponds in Ashburn, Virginia; and Riderwood in Silver Spring, Maryland. Read our earlier blog post for more details.

Why have your contract reviewed before you sign it?

A CCRC is required by law to include certain provisions in its continuing care agreements. The agreement must describe the living unit assigned to you, provide a detailed statement of all items of service to be provided, the total consideration paid, or to be paid, whether there will be periodic increases in monthly fees, as well as other pertinent information. 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 signing it. If you sign the contract and fail to go through with the terms, like the Yezzis, you could be sued for breach of contract by the owner of the facility, and possibly be forced to pay significant monetary damages. Below are other considerations to keep in mind and more reasons have a CCRC contract reviewed beforehand:

• What is the process for transferring to the next level of care? Will an assisted-living or skilled-nursing bed be available when you need it? CCRCs are often built in phases, starting with independent-living units for the healthy new residents. In some cases, residents need skilled-nursing facilities that aren’t even built yet. In other cases, CCRCs will admit people from outside the community to the nursing facility. Ask about the process for moving to a nearby facility if the nursing facility fills up and how any extra cost would be covered.
•  What are the provisions governing discharge from the facility? Facilities may attempt to discharge residents if they run out of money or develop above-average care needs, says Eric Carlson, directing attorney at the National Senior Citizens Law Center. Check for specific circumstances that might justify the facility forcing out a resident, Carlson says. “Look out for fuzzy language,” he says, such as involuntary discharges being allowed for “good cause.”
• Is there room for negotiation? With CCRCs eager to fill empty units, there is often room to negotiate fees and other contract provisions. For example, you might negotiate to pay half of the entrance fee now and half in a year. Another bargaining chip is a refund of entrance fees, which may be paid to you if you move out or to your estate if you die. Contracts can include such provisions as promising to refund a set percentage of the entrance fee or saying the refundable portion will decline over a certain number of years.
• What is the CCRC’s financial situation? To avoid a CCRC in a bankruptcy situation similar to Erickson, it is prudent to ask the CCRC for its audited financial statements, and seek help in evaluating them. Pay attention to the facility’s occupancy rate because it is another key measure of its viability. Occupancy below 85% “can be a cause for concern, unless it’s in a newer community that’s filling up. Some Erickson CCRCs, for example, had occupancy rates between 60% and 70% at the time of the company’s bankruptcy filing, according to court documents. Examine the CCRC’s ownership structure, since problems at a parent company can mean problems for residents.

Another resource to tap before signing a CCRC contract is your state department of aging. It is wise to reach out and inquire as to whether the department has issued a Certificate of Registration to the continuing care retirement community you are interested in. In most cases, your state department of aging can also send you a list of all of the certified CCRCs in the state, a copy of your state’s continuing care law and regulations, and other helpful information to assist you in making an informed decision.

CCRCs and Long-Term Care Planning

As you can see from the Yezzi situation, a risk in connection with a CCRC entrance contract is that most CCRC contracts require you to agree not to give away any assets after you enter the facility, in order to help assure management that you have the ability to pay their ongoing charges. In a Washington Post article headlined, “Scrutinize any Contract to Avoid Nasty Surprises at Continuing Care Community,” I was quoted 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.” Please read this article for more details.

Far too many people move into these types of facilities without giving asset protection a second thought. If you are considering moving into a CCRC, it behooves you to not just have me review the contract, but to also have me create the proper type of asset protection trust for you to put your extra assets in before you move in to the community.  What is the proper type of asset protection trust?  It’s my proprietary Living Trust Plus™ Asset Protection Trust — the trust that protects your assets from the expenses of probate PLUS lawsuits PLUS the catastrophic expenses of nursing home care. For most Americans, 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 allows a settlor to retain an interest in the trust while also protecting the assets from being counted by state Medicaid agencies. Read more about the LTP here.

If you’re a client or potential client who would like more information about the Living Trust Plus™, click here to register for one of our other upcoming Living Trust Plus informational seminars. If you cannot make it to one of our monthly seminars and would like to learn more about Living Trust Plus™ or if you have not done Long-Term Care Planning, Estate Planning or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call the Farr Law Firm today at 703-691-1888 in Fairfax, 540-479-1435in Fredericksburg, 301-519-8041 in Rockville, MD, or 202-587-2797 in Washington, DC to make an appointment for a consultation.