Refundable Entrance Fees for Continuing Care Retirement Communities Increasingly Not-So-Refundable

Apr 9, 2024   Print PDF

By Rachael R. Wallace | Related Practices: Trust & Estate Disputes and Trust & Estate Litigation

Upscale retirement communities that feature refundable entrance fees were increasingly popular for senior living leading up to the COVID-19 pandemic. However, these arrangements frequently entangle former residents or their estates in years-long disputes over the “refundable” nature of the entrance fees, which is proving more theoretical than reality. Those awaiting repayment of entrance fees who have terminated the residence and care agreements remain at the mercy of the entity operating the retirement community, which may have little to no motivation to repay such fees.

The popularity of continuing care retirement communities stems from the flexible care plans offered combined with the refundable entrance fee that purports to boost financial liquidity. The agreements anticipate repayment of a specified percentage of the large up-front entrance fees, usually between 80%–90% of the original entrance fee amount, for residents and/or their families who end their contracts with the community. Termination of these agreements usually occurs when a resident chooses to move, or upon death.

Most retirement communities with refundable entrance fees condition any repayment of the fee—which often ranges between $400,000 to over $1,000,000—on the re-sell of the interest in the unit to a new resident. As a result, the entities running the retirement communities are permitted to withhold large sums of money for a seemingly endless amount of time. Because the residents have no control over the marketing, sale price, monthly fees, entrance fee price, or showings, the vacancies of units linger for years on end while the retirement community prioritizes other, more profitable units, and in some cases, makes no effort at all to re-sell units.

While these unique plans sound ideal when marketed, residents are surprised when their asset (e.g., the entrance fee) remains unavailable well after they vacate the unit and terminate the contract. Residents who chose to move out of the retirement community cannot simply transfer the entrance fee to a new retirement community but instead must come up with different funds for a second entrance fee. And, in the event of death, probate must remain open until the retirement community releases the estate’s asset. This leads to an emotional toll on the family as they are forced to keep the probate open for years on end after the death of their loved one, and often prevents the estate from making any distributions to beneficiaries.

If you have specific questions about a refundable entrance fee or deposit, or questions about fee arrangements with retirement communities, contact Rachael Wallace of Stokes Lawrence.