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Comparing 55-Plus and Continuing Care Retirement Communities

Life for most of us is a series of transitions.   Employment opportunities, family commitments and lifestyle choices might explain why we live in this region instead of in another state or different climate.    When commitments related to employment, raising children or taking care of parents have ended, more flexible day-to-day schedules allow us to consider various options of where we want to live during the next stage of our lives.

Retirement for most people begins sometime during their 60s.   Travelling or acquiring a second home in a different climate are attractive options for many who can afford such a lifestyle.  Other homeowners have a variety of motivations for wanting to have less responsibility for exterior household maintenance.

The literature which promotes housing options for aging Americans promotes positive images to catch the attention of those who have time and resources to explore their choices.   Relocating from a home large enough to raise several children comfortably to a smaller, single-story home with lower taxes and utility expenses is “down-sizing.”  Getting a first floor master bedroom and bath, while eliminating exterior chores, is “right-sizing.”

Making such a move can be as simple as choosing a different style of house in the same neighborhood. For others who want to become part of a community that promises excitement and activities with similarly aged neighbors, a 55-plus community can be attractive.   Those who plan ahead and anticipate a need for care, and who do not want to depend on their children to provide it, might consider a continuing care retirement community (CCRC).

The differences between a 55-plus housing development and a CCRC are often not fully considered. A resident of a 55-plus neighborhood makes an investment in home equity and assumes responsibility for property taxes, utilities and fees to maintain the exterior.  Although some CCRC’s offer monthly fees or future rebates as options, most who enter a CCRC pay a flat entrance fee, retain no equity position, and agree to pay a monthly fee towards the operation of the community.

Because CCRCs promise those who buy-in that they will not be required to leave after their personal funds are exhausted no matter what level of care they need in the future, a CCRC provides a measure of insurance against a resident’s future need for long-term care.   For those who could not obtain long-term care insurance because of health–related issues, entering a CCRC can be a good long-term care plan that does not require assistance from family members. The Pennsylvania Insurance Department has oversight responsibility with respect to promises made to new residents in an entry agreement, and the CCRCs capacity to meet them.

Unlike a CCRC, there is no government oversight of the fiscal stability of a 55-plus community. While it is being actively marketed, the developer has a strong incentive to make sure that shared recreational services are well maintained.  But when the management of the pool and community center are turned over to the aging residents, a resident’s right to expect the same high standards of maintenance may become an economic issue that is resolved through the political process of the neighborhood association.

People who seek a lifestyle change while in their late 50s or 60s are understandably attracted to a 55-plus community’s promotion of an active lifestyle among a younger peer group of neighbors that live in a CCRC, where the average entry age is 80.   If 55-plus residents have a need or desire to host their grandchildren for an extended visit, or an adult child in transition has an economic need to move “home” for an indefinite period, it is likely that some neighbors will express displeasure.  Such accommodations usually are expressly prohibited by a CCRC.

Some 55-plus residents buy their home with a reverse mortgage that allows them to own the home for 60 to 70% of the market value without an obligation to make mortgage payments. This strategy frees equity and disposable income for travel and recreational activities during the early stage of retirement.  But, the initial investment in a 55-plus property will be lost to foreclosure if the resident is not able in the future to afford escalating property taxes, utilities and management fees.

When a 55-plus resident loses interest in socializing by the community pool, or notices unsafe behavior of physically active neighbors who show signs of cognitive decline, it might be time to consider relocating from the 55-plus community, perhaps to a CCRC. It could be easier to sell a home in a 55-plus community while it is still being marketed and subsidized by the developer, even though the existing home will need to compete with the developer’s new, custom-built options.

Moving into a CCRC while one is still healthy enough to enjoy its many activities with a new community of friends can be wise for some people. Procrastination, sometimes because the process of the move can seem to be an inconvenient chore, can make it harder eventually to assimilate into the community. Although a CCRC guarantees its residents to provide the necessary care when needed, no CCRC can guarantee to a prospective applicant on a waiting list that a suitable vacancy will exist later when one spouse suddenly needs long-term care.

Not all CCRC agreements are the same, but most are necessarily somewhat inflexible, more like a mortgage or car loan than a purchase and sale agreement for a home.  A wise CCRC applicant should meet with an attorney before signing the entry agreement to understand both it and the CCRC’s required financial disclosure statement. If written provisions or restrictions seem different than what the marketing staff represents to be current policy, it is important to recognize that.

Since a CCRC promises not to evict residents if their assets have become exhausted, the CCRC has an understandable need to ask an applicant how much money exists at the time of entry. While an applicant’s age and other circumstances are factored in, it is generally true that a couple with less than $200,000 will likely be rejected; and a couple with more than $1,000,000 will likely be admitted.   A CCRC has a legitimate concern that assets that are disclosed and relied upon to induce admission are not subsequently exhausted in gifts to children.  However, if prior to the signing of an entry agreement, an applicant would engage in estate planning to shelter assets in excess of the assets disclosed to the CCRC in an admission application, there should be no detriment to the CCRC, since it would be getting what it bargained for.

by Dave Nesbit, Attorney