James Sullivan
James Sullivan

Three Types of Contracts CCRCs Offer Prospective Residents

How CPAs can play a critical role in which CCRCs their clients should move into.

September 13, 2010
by James Sullivan, CPA, PFS

Continuing Care Retirement Communities (CCRCs) are not new. Their origins have been traced back over 100 years. At that time, faith-based groups provided lifetime care for the elderly in exchange for all of their assets. These nonprofit institutions were formed initially for charitable purposes and offered a place to live and care — if needed — even when the resident outlived their assets. Residents were able to live out their lives in dignity and avoid becoming wards of the local government. Today there are over 1,800 CCRCs in the United States — most of which are still operated as nonprofits, but have established relationships with for-profit entities that may manage or even control the facility.

While the majority of seniors would prefer to stay in their homes and “age in place” over 750,000 seniors have chosen to live in a CCRC. Most CCRCs require a large entrance fee — some in the six- and seven-figure range. In addition, a monthly fee is charged.

Last month I divulged the basics of CCRCs and the scrutiny they have drawn recently by the Special Committee on Aging of the U.S. Senate. This month I reveal the three types of contracts CCRCs offer prospective residents. In an upcoming column I will detail the types of questions that prospective residents (or their CPA advisors) should ask the CCRC before signing the contract.

Because of the size and complexity of the transaction, a CPA can play an important role in assisting clients with making the decision whether or not to move into a CCRC — or which CCRC to move into.

Types of CCRC Contracts

A CCRC is defined as an age-restricted community (usually incoming residents must be age 65 or older) that offer independent-living units, assisted-living units and skilled-nursing facilities all on the same campus. These facilities attract seniors who desire to live independently upon entering the CCRC but also want to know that they can receive needed care without having to leave the community. This arrangement allows the resident to stay close to their spouse and friends as they move through different levels of care.

Most CCRCs require the resident to pay an entrance fee plus a monthly fee. The entrance fee may or may not be refundable. Some contracts provide that the portion of the entrance fee that is refundable decreases with each month of residency, e.g., the refundable portion decreases two percent per month until a specific length of time and, after 50 months in the facility, there is no remaining refundable amount. Should the resident move out or die with a refund due, they (or the heirs), the refund may not be paid until a new tenant is found for the unit and the entrance fee is paid.

The monthly fee is set in the contract and typically increases annually to cover any increase in the cost of operations. In a CCRC, residents begin their stay in the independent living unit. If they are required to move to assisted living or skilled nursing, the monthly fee may increase due to the increased cost of care. This is not always the case. Some CCRCs charge a very high entrance fee with the promise that the monthly fee will not increase as the need for care increases. Whether the monthly fee increases as the need for care increases or not depends on the type of contract the resident signs.

In general, CCRCs offer three types of contracts:

  • Type A or extensive or life-care contracts that include housing, residential services and amenities — including unlimited use of healthcare services at little or no increase in the monthly fee. These contracts typically feature the highest entrance fees. The CCRC absorbs the risk that more residents than projected will need higher levels of care.
  • Type B or modified contracts typically offer lower entrance and monthly fees. Type B contracts limit the amount of health care services that may be accessed without any increase in the monthly fee. For example, some may offer a limited stay in the skilled-nursing facility with no increase in the monthly fee (for example, up to 30 days every four months). If the resident requires an extended stay, the monthly fee will increase but still be below the average cost of a stay in other skilled nursing facilities in the area.
  • Type C or fee-for-service contracts include similar housing, residential services and amenities as Type A and B contracts but require residents to pay market rates for any health-related services under an as needed arrangement. Type C contracts offer lower entrance fees and monthly fees but the risk of large long-term-care (LTC) expenses remain with the resident — the risk is not shifted to the facility.

Risk Shifting Nature of the Contracts

It is important to note that the risk shifting to the facility under Type A and B contracts has important implications that the CPA should help their clients understand:

  • A well-run facility will minimize the risk of admitting a large number of residents who will be in need of care. For this reason, facilities require prospective residents to submit health information before being allowed to move in.
  • The prospective resident also has an interest in knowing that the facility is not admitting more residents needing a higher level of care than anticipated. This may result in the facility having significant financial problems in the future forcing it to increase entrance fees (which will make it harder to attract new residents) and/or increase monthly fees. Increased monthly fees can make the facility unaffordable for some current residents. If they are required to move they may find that any entrance fee refund is delayed because new tenants are difficult to find.
  • A few facilities have actuarial studies performed with mortality and morbidity tables to assess the future need for care and expected turnover of CCRC occupants. The CPA should ask for a copy of such studies, if available. Otherwise, an analysis of the current population — average age as well as the number of residents currently in assisted-living or in the skilled-nursing facility can help determine if the population is at risk for needing care.

Charitable Care

Many nonprofit CCRCs still offer lifetime care even if the resident runs out of money. For this reason, a prospective tenant will be required to submit financial information. Based on the information provided, the CCRC may deny admittance if the assets and income are considered insufficient given the prospective tenant’s life expectancy. In addition, there can be restrictions on the resident transferring assets to family members. Such transfers, if discovered, may result in the resident failing to qualify for the charitable provision.


The financial risks inherent in a CCRC contract are often not understood or are misunderstood by clients. A CPA can provide a valuable service by helping them understand these risks. An upcoming article will provide more specific questions that should be asked of CCRCs before a client enters into a contract.

Rate this article 5 (excellent) to 1 (poor). Send your responses here.

James Sullivan, CPA, PFS, MAS, is an investment counselor at Core Capital Solutions LLC. He has almost 25 years of experience in individual tax, investing and personal financial planning. Before joining Core Capital Solutions, Sullivan spent 20 years at Arthur Andersen LLP. He is a member of the AICPA PrimePlus/ElderCare Task Force.

* PFP Section members, including PFS credential holders will benefit from additional Medicare resources in Forefield Advisor on the AICPA’s PFP website at aicpa.org/pfp. Non-members can click here to join the section.