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From the Wall Street Journal this morning: More than 1,000 families have lost a total of at least $190 million in 16 bankruptcies at continuing-care retirement communities since March 2020, according to a Wall Street Journal analysis. Chapter 11 filings rose during the pandemic period primarily because these facilities didn’t have enough new move-ins. And because of the way bankruptcy proceedings work, secured creditors get paid before residents.
I ended my online subscription to the WSJ a few months ago, so if a subscriber among HD readers could supply a gift-article link, it would be appreciated.
As a career-long newspaper journalist, I offer the information without taking a position on continuing care retirement communities. But both my wife and I have/had a parent with dementia resulting in years-long stays in assisted living and memory care, so I pay close attention to the debates about long-term care and long-term care insurance. One parent had LTC insurance; one does not. Thankfully, both had more than enough savings to cover their costs.
The National Law Review in 2012 issued a long white paper titled –
Continuing Care Retirement Communities (CCRCs) Fees – A Primer on the Tax Treatment of Entrance and Monthly Fees
The paper concludes in part –
CCRCs provide valuable lifestyle and medical options for the elderly in a tax-efficient manner. For residents, portions of entrance and membership fees paid to these facilities may be deductible under IRC § 213 to the extent they are attributable to medical expenses.
I laughed when I read the footnote stating –
It is said in some circles that, if you have seen one CCRC, you have seen one CCRC
meaning each CCRC is unique. I would expect that the written annual estimate of deductible medical expenses provided by the CCRC to the resident is currently sufficient evidence to support a itemized medical expense on the resident’s federal tax return.
I am not an accountant, but doubt that all of a nonrefundable entry fee is deductible as a medical expense since it presumably is for other things only or in part. Assume the same is true for the monthly fee. Also remember that itemizing deductions only starts after 7.5% of taxable income, and you lose the standard deduction when itemize. Finally, I believe that it would be impossible for normal citizens to understand and evaluate the financial statement of a CCRC because it would require knowing future costs as well as related income, details of all financing, etc. Certainly know that the more the debt, the more the risk as well as probable interest expense being passed on to residents. At a minimum, consider that for-profit facilities have a profit incentive (duh!), whereas nonprofits do not. However, also look at the experience and credibility of sponsoring entity behind the single purpose entity that owns the facility.
I’m 76 and live alone. My only close relatives are my brother and sister. My brother is already in assisted living, and I would not expect my 66-year-old sister to care for me. They both live within 15 miles of me, and I don’t wish to move to a different area. Despite the generally excellent health facilities locally, there are no true CCRCs.
I am considering moving to an independent living community which is almost across the street from me. They are on the campus of a hospital but are separately managed. The independent living community has associated assisted living and memory units but no nursing home. They post their rents on their website, and they are quite reasonable. The non-profit which owns the hospital does have a nursing home on the same campus. That nursing home is named for the family which owns the independent living community, I don’t know what the connection is. The assisted living place where my brother lives is owned by the same family but is managed by a different company.
Luckily, I’m in a financial position where, barring several years in a nursing home, I’m unlikely to outlive my money.
As always Buyer Beware, no matter what your are purchasing. Since we are discussing major amounts of money, you need to review the Financials of the CCRC. You need to be convinced they are a long time going concern. We visited 10 different CCRC’s and found the best were ones with a religious connection, generally in business for 20 years or more, look for stability. In fact, if you run out of money at our CCRC you will NOT be turned away. It is very rare, but of course can happen depending on all the circumstances.
After living in a CCRC for over 3 years, you learn a lot about TAX deductions. The largest is on your Entrance Fee, because it is generally $300K to $900K and more. There are many types of plans, most common is 90% return of the Entrance Fee. Some accountants and CPA’s are unfamiliar with these Medical Tax deductions. Yes, I have seen comments the deductions are limited to that 10% not returnable. FALSE, the most common deduction is the Percentage Method and is used most often by all the CCRC’s in the US and is generally twice as much, but must be calculated. Check out the Special Issue Brief by Paul Gordon Medical Tax Expense Deductions. You have to do some work to make sure your Accountant or CPA is familiar, as this is a major tax deduction to your benefit. Your monthly fee is also a Tax Deduction due to a percentage determined by your CCRC, and can be 30% to 50%. These deductions are dependent on your Plan with the CCRC, the key here is to ask questions, as these deductions will save you on your taxes. We all need help to attain the proper deductions, do not be afraid to ask a lot of questions.