Many entry fee retirement communities offer residents the choice of a traditional entry fee contract, generally referred to as a declining balance contract, or a refundable entry fee contract. The trade-off: All other things being equal, a resident will usually pay a higher fee for a refundable contract than they would under the traditional contract.
>> Related: A Primer on CCRC Residency Contracts
Declining balance contracts
Under a traditional, declining balance contract, the entry fee is refundable on a declining-scale over time (thus the term “declining balance”). For instance, the entry fee may amortize at 25 percent per year for the first four years. After four years, there is no remaining refund. The amortization schedule varies from one community to another. It could be shorter or longer than this example.
Refundable entry free contracts
With a refundable entry fee contract, on the other hand, there is a floor to how far the entry fee refund declines, or “amortizes.” For example, a 50 percent refundable contract might amortize 2 percent immediately and another 2 percent each month for two years, for a total of 50 percent. The remaining 50 percent is ultimately due to the resident or the resident’s estate regardless of the timeframe. In this example, if the resident were to move out (or in the event of death) during the first couple of years, the refund due would be more than 50 percent.
Understanding the fine print
If you or a loved one is considering a move to a continuing care retirement community (CCRC, or “life plan” community) with a refundable entry fee contract, it is important to be very clear on what the contract details and stipulations are for receiving such a refund. You should also do your research to be sure the community is well-positioned financially to meet such obligations to residents.