When Rilla and Jack Neafsey decided to move into a continuing care retirement community five years ago, the facility's location and their past experiences caring for their aging parents' finances loomed large in the choice, Jack Neafsey recalled in an interview.
"It wasn't a heck of a lot of fun, and I wasn't going to let that burden fall to my kids," said Neafsey, 84. He and his wife are residents of a Redding, Connecticut-based luxury CCRC called
By living in a CCRC, the Neafseys made a choice that financial planners and tax professionals say is one way to bring strategies and some degree of certainty to the medical costs of aging. For those who can afford the substantial entry fees, living in a CCRC (also known as life plan communities), can be a worthwhile answer to tax strategy and planning questions. The cottage- or condominium-style facilities are designed to provide independent living, assisted living, memory care and skilled nursing display some complexities — experts say some of the facilities don't always deliver on that full continuum of care and the tax advantages come with caveats. The benefits of the best facilities include comfortable living and planning opportunities for many older clients.
"This is where it's really valuable to financial planners," said Sean Dowling, a certified financial planner and enrolled agent specializing in working with current and prospective residents of CCRCs as the president of a Greenwich, Connecticut-based firm called
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That's why Dowling and a half dozen other experts recommended that prospective residents and their financial professionals examine the fine print of their fees and contracts and the fiscal condition of any life plan community — i.e., the details beyond the swimming pools, dining areas and other activities depicted in glossy brochures and websites.
By the numbers
The nearly 2,000 CCRCs across the country charge entrance fees ranging from a few thousand dollars to more than $1 million. The average is $329,000, according to "
"When you compare the monthly costs of living at home — including items such as mortgage or rent, property tax, home insurance, food, utilities, housekeeping, lawn and garden services, gym membership, entertainment, activities, scheduled transportation, home security and home maintenance — to the monthly cost of independent living at a CCRC, you may be pleasantly surprised at how affordable a CCRC really is," according to the Where You Live website.
Life plan residents have "better physical, emotional, intellectual, social and vocational wellness than their community-dwelling counterparts," according to the "
CCRC residents usually agree to one of the four main types of contracts, according to
- "Type A" or "Life Care," which aims to keep monthly fees relatively consistent at the same level for the rest of residents' lives;
- "Type B" or "Modified Plan," which has lower monthly fees than Type A and, sometimes, smaller entrance fees but assesses part of the cost of a higher level of health care to the resident;
- "Type C" or "Fee-for-Service," which has potentially the cheapest fees for independent living but increases to market rates for expanded medical services; and
- "Rental" agreements, which have no entrance fee (or perhaps a small community fee) but charge monthly service costs that can go beyond the initial costs of other CCRC contracts, plus market rates for medical care.
Another advocacy group of about 1,500 members, the
"Yes, you get room and board, and you get onsite doctors and nurses, but if you need a kidney scan or dialysis or something like that, that's extra," Haynes said. "You end up paying more than you would expect."
Tax questions
Those costs may prove beneficial to some clients' tax savings through itemized deductions for
"We would want our clients to get a letter or a certification from the CCRC that indicated the reasonable percentage that was applicable to medical care," said Chuang, noting that she advises clients to track the costs of medical care, Medicare premiums or any long-term care insurance. "So you would want to aggregate all of those expenses and, hopefully, at the end of the day, you're in excess of 7.5% of AGI."
A client who is eligible for up to $100,000 worth of deductions through charitable gifts, entrance fees and out-of-pocket medical costs could get $35,000 to $40,000 worth of tax savings, according to Steve Henderson, a CPA and CFP who is the regional director and partner with the Tulsa, Oklahoma-based office of
"Rarely do we see a normal client get a medical deduction," he said. "They're rarely going to have enough that they're going to get above 7.5%, let alone get above the higher standard deduction."
The possible tax savings on monthly service fees revolve around whether the residents live in independent living or facilities with higher levels of care, such as assisted living or skilled nursing, according to a PowerPoint presentation Dowling gives regularly at another CCRC in Stamford, Connecticut called
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Up to 90% of the first entry fee paid by a couple is refundable upon a resident's death or move to a new home. The nonrefundable portion of the first resident's entry fee and 100% of any spouse's entry expense decides the amount of the potential deduction, Dowling's presentation noted. To calculate the deduction for the tax year that the residents pay those fees, the residents would multiply the medical-expense calculation by their nonrefundable entrance fees.
Financial planners and their clients should think through potential out-of-pocket costs, Medicare or long-term care premiums and vehicles such as donor-advised funds or a charitable remainder trust to get a complete picture of the possible tax benefits, Dowling said.
"You really need a multiyear tax plan when you're thinking about a CCRC and you're talking about moving into one," he said. "If you can break this up into two years, what we've found is that you can maximize that first-year deduction."
Other planning questions
Advisors and clients may find some other savings by thinking through their options for the contracts with a CCRC, said James Bremis, a CFP who's a financial planner with Wakefield, Massachusetts-based
"A lot of the times when you go into those CCRCs, you're prepaying for health care expenses even though you might not necessarily need them," Bremis said. "If you're worried about costs and you're trying to lessen the blow, that's one way you could do it."
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In seeking the maximum possible deduction with the move-in, older clients and their planners might find fresh reasons to think about a major charitable gift alongside the consideration of moving into a life plan facility, Henderson said.
"It's also an opportunity to do some other planning," he said. "You can have some conversations with them about some things that they may have thought about but just never had the chance to do."
Quality of life
The potential tax savings represent "one of the things that everyone should understand" about CCRCs, according to Neafsey, who was the chief financial officer of a large energy company before his retirement. At Meadow Ridge, he and his wife live close to their son and his family in Darien, Connecticut, and roughly halfway between New York City for outings there and Cape Cod, where the family has had a home near the beach for nearly 50 years. The Neafseys
In an interview last month, Neafsey raved about the activities available to residents of his CCRC. The campus spans about 60 acres, and about 100 acres of public land nearby offer walking trails. Residents may use the Olympic-size pool, a large auditorium, the gym and three different eateries. The "Meadow Ridge University" brings college professors to the campus each fall and spring to teach courses in subjects like history or political science.
In addition to a library onsite, Meadow Ridge has a partnership with a local library that brings any other requested books to the residents once a week. Neafsey and roughly a dozen residents meet often to talk about world affairs through the "
"There are a number of really interesting, stimulating activities that take place in Meadow Ridge," he said. "We try to engage people, force them to think outside the box, think about, 'What should the United States' policy position be?' … Instead of going to dinner and talking about your golf score that day, you have something perhaps a little bit broader and deeper to offer."
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At
"That's what sets Edgehill apart," she said. "It's a great place to be. It's a lot of fun, but it offers the safety and security for the residents knowing that, regardless of what might happen in the future, we can take care of it."
While some CCRC contracts could potentially take the place of long-term care insurance, and Dupree cautioned in an interview that she isn't a financial advisor, she noted that the insurance policies may cover part of the monthly service fees.
Living in a CCRC "offers some semblance of assuredness in a time of total uncertainty in terms of how much things are going to cost," Dupree said. "If people have long-term care insurance, they should continue to endeavor to research these types of communities and not wait."
Dowling's firm has been working with residents of Edgehill for 30 years, he noted, comparing the facility to a college, country club, church group or another social organization. Residents often take in Broadway shows, he said.
"They have dinners together every night. They have buses that take them into the city," Dowling said. "My clients who go there love it. They cannot say enough good things about it."
Resources for prospective residents
The websites of the
Haynes' organization has a consumer guide, a handbook discussing what prospective residents should know about the financing of CCRCs and a "model bill of rights" for residents. Haynes recommends that potential residents consider the location, ask to see the health care facilities on any tour, try to meet people who have lived on the campus more than a year and request financial reports and contracts — then run them by a lawyer, accountant or financial advisor.
"The first thing is, where do you want to live basically the rest of your life?" Haynes said. "They will take you and show you the swimming pool, the tennis courts, the gym, a meal, which is probably wonderful and the service is probably outstanding. … Don't rush into it."
