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Contracts For Continuing Care Communities are Tricky and One-Sided
Jan L.Warner & Jan Collins

Question: With our children scattered over the United States, my wife and I realized several years ago that we will probably need some type of assisted living care in the years to come. Not that we think 72 is "old," but we are trying to be realistic. During our search, we found a community that seems like an ideal place where we can receive care for as long as both of us live. After selling us on the idea, the counselors began explaining the economics of the transaction which made us very nervous. While we like the people and like the area, we realize they are sales people, and we need an unbiased opinion about how this will impact us economically and whether there are pitfalls. Where can we find information about this lifetime care contract and whether it is feasible for us?

Answer: While many communities provide various care services to residents as long as they live through "life care" or "continuing care contracts," there are attendant costs and potential pitfalls that some don't realize until after they've signed on the dotted line. That's why it's wise to understand the economic ramifications of the business deal before commit yourselves.

Basically, "continuing care" arrangements provide you and your wife with residential quarters and -- if and when necessary -- nursing home care for as long as you both live. In return, you pay a substantial admission fee and continuing monthly payments that are based on operating costs and fluctuate with inflation. Because these arrangements can continue for many years or terminate should both of you die unexpectedly, there are very special financing issues that must be examined.

For example, at death, the admission fee is often non-refundable, no matter how long you have lived there and no matter the value of the services you actually received. Generally speaking, since you and your wife will generally not be purchasing any ownership rights, this raises questions about what you receive for your money. But there are some agreements which provide for the purchase of an interest in a cooperative - which you must sell if you enter the nursing home area of the community.

The advantages of these arrangements include independent living, security, and affordable nursing home care if you need it; however, there can be significant financial disadvantages. For example, if the owner of the community is not financially sound, there may be substandard conditions and less quality of care due to cutbacks in services. And since admission rates are based on the projected deaths of residents, longer life means less admission fees which could lead to the owner's financial instability. Should the community go bankrupt, residents stand to lose what they have "invested" in the right to live in the community. Due to the influx of large amounts of cash from the admission fees, some communities have "gone under" due to fraudulent activities by management.

Some agreements provide escape if you move in, kick the tires, and decide this type of living is not for you; however, other forms of agreements don't give you any escape hatch.

Taking the NextStep: You should hire an experienced lawyer to review these contracts before you sign your name and give your check.



Need more advice or help with this topic? Click here to get information about taking the "Next Step".
     Related Resources

  • Continuing Care Neighborhoods Need Careful Examination

  • CCRC Contractual Pitfalls

  • CCRC Contracts Part 2

  • CCRC Part 3-Contracts



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