Continuing care retirement communities (CCRCs), also known as life plan communities, provide a full continuum of care—from independent living through assisted living and skilled nursing—so residents’ needs are met as they age. Many CCRCs require a substantial upfront entry fee when a resident moves in. Often part or most of that fee is refundable under terms spelled out in the resident’s contract. The contract will explain how refunds are handled if a resident moves out or dies.
Prospective residents and their families frequently have questions about what happens to refundable entry fee funds when a resident passes away. When is the money refunded? Who receives it? Does the refund become part of probate? Are there tax implications, such as capital gains? Below is a clear summary of how entry fee refunds typically work and what to check before committing to a CCRC.
What is a CCRC entry fee?
An entry fee is usually a one-time, upfront payment that secures lifetime access to a residence, services, amenities, and a continuum of care at the community. Entry fees vary widely—often from tens of thousands to several hundred thousand dollars or more—depending on location, unit size, and community features.
In addition to the entry fee, residents pay a monthly service fee (MSF) that covers housing-related services and amenities. Those can include meals, housekeeping, maintenance, landscaping, social and educational programs, wellness services, and more, depending on the community.
Entry fees are commonly structured in different ways: some contracts offer a declining-balance refund, others specify a fixed refund percentage (for example, 50% or 90% refundable), and some are fully nonrefundable. Refunds are typically paid to the resident if they vacate or to the resident’s heirs after death, subject to contract terms.
There are alternative models: in some CCRCs residents purchase and own their units under an equity model, while other communities operate as rental models without entry fees. The contract and refund mechanics differ across these models, so review the agreement carefully.
Does a CCRC entry fee refund go through the probate process?
Probate is the legal process for distributing a deceased person’s assets under a will or state law. Whether an entry fee refund goes through probate depends on how the refund is paid and what the contract specifies.
- Refund paid to the estate: If the community issues the refund to the resident’s estate, it will generally be treated as an estate asset and pass through probate along with other assets.
- Refund paid to beneficiaries: If the contract allows the refund to be paid directly to designated beneficiaries and the beneficiaries are named explicitly, the refund may bypass probate and be distributed outside the probate process. A resident can sometimes name a trust as beneficiary to achieve similar results.
Always review the CCRC contract to determine whether refunds are paid to beneficiaries or the estate. Consulting an experienced estate attorney or accountant who knows your state’s probate rules is advisable.
Are there tax implications with entry fee refunds?
Capital gains taxes apply when an owner sells an appreciated asset for a profit. Questions about capital gains can arise if an entry fee refund is received by the estate, especially under equity ownership or if the residence itself was sold.
- Entry fee refunds are generally not capital gains: In most cases, an entry fee refund is treated as a return of a prepaid fee rather than a capital gain. It typically is not taxed as income or capital gain because it is a refund of an upfront payment made for housing and future care services.
- Equity model and potential capital gains: When a resident owns their unit under an equity model, any profit from selling that unit while the owner is alive could be subject to capital gains tax, although many homeowners qualify for exclusions on the sale of a primary residence. If the owner dies while owning the unit, beneficiaries may receive a stepped-up basis to the property’s value at death, which often eliminates capital gains tax liability on a subsequent sale.
Because tax treatment can vary based on contract structure and individual circumstances, consult a tax professional or estate attorney to understand potential estate tax or capital gains consequences for your situation.
Understanding CCRC contract terms and entry fee refunds
Moving into a CCRC is often motivated by lifestyle and the peace of mind that care is available if needed. Where an entry fee applies, the upfront cost can be significant, but it may also guarantee access to care and services over time.
It is crucial to understand exactly what the entry fee covers and the specific refund provisions in your contract—whether the fee is fully refundable, partially refundable, declining over time, or nonrefundable. Equally important is assessing the financial strength of the community that will be responsible for paying any promised refund.
Make sure the executor of your estate and other family members understand the contract’s refund provisions. As with any major financial commitment or legal agreement, obtain guidance from experienced legal and financial advisors who can review the contract, explain refund and probate implications, and advise on tax considerations so you and your loved ones can make an informed decision.