This is the second part in our two-part series called Understanding Senior Living Costs. The first part covered monthly costs for rent, care, and ancillary items. Those are ongoing costs, typically paid monthly, for living in a community and receiving care. In this article, we are going to discuss one-time costs, which are paid at the time the resident moves into the community or shortly beforehand.
There are a couple of different one-time costs: community fees, entrance fees, pet community fees, improvement costs, and transfer fees. Community fees and entrance fees are by far the largest and most common one-time costs in senior living. The other costs are typically only paid in special cases and are less expensive.
Community fees and entrance fees are like sister costs in that they both provide access to the community, but they are charged by different types of communities and vary greatly in amount, refundability, and how they impact future care costs.
- Community Fees
- Rental Communities
- Smaller ($1k – 10k+)
- Fixed Amount
- No Care Included
- Entrance Fees
- Larger ($30k – 1M+)
- Sometimes Refundable
- May Prepay Care
Entrance Fees are large ($30,000 – $1,000,000+) up-front fees charged by continuing care retirement communities, also known as CCRCs, for access to the community and sometimes to cover future care costs. Depending on the entrance fee’s structure, it may be fully refundable, partially refundable, or non-refundable. When you leave the community, you or your estate may receive a refund of a portion or all of the entrance fee.
A continuing care retirement community (CCRC) is a senior living community that offers a continuum of care (a combination of independent living, assisted living, memory care, and skilled nursing) on the same campus and a large, up-front entrance fee.
Most CCRCs use the entrance fees to prepay or cap future care costs for the resident; this is known as life care. Life care is similar to insurance, in that it protects individuals from future extreme cost outcomes. This is why many CCRCs are regulated by state insurance departments.
CCRC contract structures vary from community-to-community and sometimes within a community. This makes comparing between CCRC options difficult. We try to clarify the most common options later in this article.
There are three main types of entrance fee contracts (Types A, B, and C). We discuss these in more detail later, but they essentially vary in how much future healthcare costs (assisted living, memory care, or skilled nursing) are prepaid/locked-in.
Community Fees are smaller ($1,000 – $10,000+) up-front fees charged by non-CCRC communities or what the industry calls “rental” communities. These fees are typically non-refundable, with a few minor exceptions, and do not include any prepaid care.
Since entrance fees (associated with CCRCs) and community fees (associated with non-CCRC communities) can vary so dramatically, it’s important to understand the ins and outs of each of these fees to decide which type of community, and fee, is right for you. We will start with community fees, since these are simpler.
Community fees are charged by non-CCRC communities. These fees are typically paid prior to move-in and are non-refundable, so you will not receive the community fee back when you leave the community. For example, a resident may pay the one-time community fee of $5,000 for access to the community when she signs the lease agreement (0-12 months before move-in), then will pay ongoing monthly rent and care costs discussed in our previous article. When the resident leaves the community, she or her estate will not be refunded the community fee.
Unlike entrance fees, community fees do not pre-pay any care costs or guarantee access to future healthcare. This means that your monthly costs will increase as your care needs increase. For instance, if you move from independent living to assisted living or from assisted living to skilled nursing, then your monthly costs will increase to the market rate for those services.
Whether this is a better deal for you depends on your situation, future events, and becomes a math problem.
How Much are Community Fees?
Community fees are typically in the $1,500 to $5,000 range, but can get as high as $10,000 or more. The fee is usually a fixed amount within a community regardless of which apartment or cottage that a resident chooses. For instance, the community fee for a studio is the same flat-fee as it is for a two-bedroom apartment.
Which Types of Communities Charge Community Fees?
Community fees are charged by communities that are not CCRCs and offer independent living, assisted living, or memory care. These communities may only offer one type of care (just independent living or just memory care for instance) or may offer multiple types of care. Holiday Retirement, Sunrise Senior Living, Brookdale Senior Living, and Five Star Senior Living are large management companies that often manage these types of communities.
Historically, luxury campuses that offer the full continuum of care (independent living, assisted living, memory care, and skilled nursing) were the domain of CCRCs. The fact that a resident could age-in-place on a beautiful campus made the investment, or expense, of a large entrance fee more acceptable to prospective residents.
More recently, however, many providers that only charge a community fee offer campuses with the full or nearly-full continuum of care and with services and amenities that are comparable to CCRCs.
Some management companies that offer community fee only campuses are Kisco Senior Living, Somerby Senior Living, Discovery Senior Living, Merrill Gardens, and Harmony Senior Services.
Community Fees for Second Residents
If you plan on moving into a community with your spouse then there may be an additional second resident community fee that is usually much smaller than the community fee for the primary resident.
Are Community Fees Negotiable?
It depends on how badly the community that you’re looking at needs your business. If the community needs your business then they may be offering an incentive to all new residents or be willing to reduce or eliminate your fee in particular.
Community fees are one of the most negotiable costs in senior living. Community fees are often discounted for communities that are just opening, recently renovated, under new management, struggling with occupancy, etc..
For instance, a new community with many vacant units to rent may offer a founder’s incentive that reduces a $5,000 community fee to $2,500. Or another example is a community struggling with occupancy that eliminates a $1,500 community fee for residents that will move in within the next two months.
If nothing else, it never hurts to ask, even if you’re pretty set on a particular community.
Are Communities That Charge a Community Fee Right for You?
If you want a lower up-front fee, don’t mind paying for increasing care costs at the time you need them, and like the communities that offer this type of fee, then they are probably a good fit. If you prefer to live in a luxury CCRC or want the comfort of prepaying or guaranteeing access to future care, then a CCRC that charges an entrance fee may be a better fit for you.
As discussed before, entrance fees are large up-front fees that are charged by CCRCs to give a resident access to a continuing care retirement community. These fees can be quite complicated since there is a great variability in their structure from community-to-community and even within a particular community. This can make it difficult for even financially sophisticated seniors to understand the options.
How Much Do Entrance Fees Cost?
Entrance fees are typically in the $30,000 to $400,000 range. Although, they can climb as high as $1,000,000 or more in extreme cases.
How Do Entrance Fees Vary?
Entrance fees can vary depending on a number of factors: type of entrance fee, refundable amount, monthly cost of the apartment, amount/length of prepaid healthcare services.
Depending on which type of entrance fee you buy, it can serve like an insurance policy against future healthcare costs. There are three main types of entrance fee contracts: Type A, Type B, and Type C. Type A contracts lock-in future care costs (assisted living and skilled nursing, not hospital care) so that your monthly costs remain the same. Type B contracts lock-in future costs for a defined period of time or use. Type C contracts don’t lock-in or insure against any future care costs.
Type A entrance fee contracts fully lock-in your monthly cost even as your needs progress and you require more care (excluding acute/hospital care). For example, your monthly cost will remain the same as you move from independent living to assisted living, and assisted living to skilled nursing. So, regardless of which care level you’re at, you’ll pay the same monthly cost (barring some minor inflation adjustments).
Since Type A entrance fee contracts prepay healthcare expenses, a portion of the entrance fee paid may be tax-deductible for the year that you move into the community. If you want to know what amount is deductible then ask the community in which you’re interested.
Type B (Modified)
Type B entrance fee contracts lock-in your monthly costs for a fixed period of time or use. After that period of time ends then your monthly costs will jump to the market rate. For instance, a Type B entrance fee may ensure you receive twelve months of assisted living care and three months of skilled nursing care (skilled nursing typically costs more than assisted living). During the time you’re in those care levels, you’ll still pay the same monthly rent. After that period of time ends, then your monthly payment will jump to the market rate.
Type C (Fee-for-Service)
Type C entrance fee contracts do not lock-in your monthly costs for any period of time. Hence, these are also known as “fee-for-service” contracts. The resident pays the full market-rate for healthcare costs at the time that those services are used. Type C entrance fee contracts are the most affordable since they do not include any prepaid healthcare.
How Else Do Entrance Fees Vary?
There are three other primary ways in which entrance fees vary. Entrance fees vary based on which apartment or cottage you choose, based on the refundable amount, and based on the monthly rent fee.
The more refundable (more money you get back when you leave), the more expensive the entrance fee.
Entrance fees are sometimes partially or fully refundable, but they may be non-refundable. The more money you get back at the time you leave the community, then the higher the entrance fee will be, all else being equal.
For example, a studio with a 90% refundable entrance fee may cost $100,000. When the resident leaves the community, the resident or her estate, will receive $90,000 (90% times $100,000) back and the community will keep the $10,000 difference.
The same studio with a 100% refundable entrance fee may cost $135,000. So, the resident will have to put more money up-front ($135,000 versus $100,000), but the resident or her estate will receive the full $135,000 (100% times $135,000) back when she moves out. Since, the community does not keep any of the money to help cover costs, the resident has to put up more initially to make up the difference.
Example of Increasing Entrance Fee as Refund Increases
|Apartment||Entrance Fee||Refund %|
How Monthly Costs Affect Entrance Fees
CCRCs sometimes vary the entrance fee based on the amount of monthly costs. These two are inversely related. A higher entrance fee will result in a lower monthly cost and a lower entrance fee will be paired with a higher monthly cost.
|Apartment||Entrance Fee||Monthly Cost|
Are There Any Risks Associated with Entrance Fees?
When and if you receive a refund depends on the terms of the Residency Agreement (may be called Lease, Rental, or Service Agreement) and the long-term financial viability of the CCRC.
For instance, many Residency Agreements require that the apartment that you rented be rented again prior to the community paying a refund. So, if the community is struggling to rent apartments then you or your estate may have to wait indefinitely to receive a refund. It is wise to have an attorney review the Residency Agreement before signing, so you and your family are fully aware of when, in what amount, and if you’ll receive a refund of your entrance fee.
Although rare, the CCRC you’re considering may go bankrupt putting your entire entrance fee at risk. CCRCs are typically regulated by the state where the CCRC is located through an insurance or other department. CCRCs must provide financial, feasibility, and actuarial documents to the state describing the financial health of the community from time-to-time. Request these documents from the community or the state and have a financial advisor or CPA review them to ensure that the financial health of the CCRC that you’re considering is in good shape prior to handing them your money.
Making Sense of Entrance Fees
Entrance Fees can be difficult to compare for even the most financially sophisticated seniors, since they vary based on the monthly costs and refunded amount. You cannot just compare the amount of two entrance fees, you have to consider them in the context of all of the costs of living in a CCRC. To simplify your decision-making process, there are a couple of tricks you can use to clarify your choices.
Think of CCRC costs in the context of three different points in time: how much you’ll spend to move into the community (the entrance fee), how much you’ll spend while you live in the community (rent and care costs), and how much you or your estate will receive back when you leave the community (the refund or lack thereof). If you write these figures down and total them, then you can get your total cost.
Entrance Fee (before move-in)
Rent + Care Costs (during)
less Refund of Entrance Fee (after)
Using a pen and paper or opening a spreadsheet to record these three figures can make things much clearer. Looking at it this way will also help you answer these key questions:
How much will I have to pay up-front? Will I need to sell a house or other assets to afford this entrance fee?
Will I have enough income to pay the monthly costs for this apartment? What if my care costs go up, will I be able to afford the monthly costs then?
How much money will I or my estate receive when I leave the community? Is this, and any other assets I will have, the amount of inheritance that I want to pass on to my children or friends/family members? Do I want to leave any money at all to those ungrateful children?
After you complete this process for a couple of different apartments and entrance fee structures, some patterns will start to emerge and you will hone-in on the entrance fee option that best fits your situation.
In any case, seeking the help of a financial professional or CPA to review your work or walk you through the scenarios may be helpful.
A few CCRCs require that you purchase the apartment (or – cottage, duplex, or single-family home) that you’re moving into. This is an even bigger commitment in that you will only receive money back in the event that the particular apartment sells to another individual when you leave the community.
Other One-time Costs
There are a couple of other one-time costs. These are less common, typically less expensive, and are usually the result of special situations or requests.
Pet Fees – some communities require an up-front pet community fee. For instance, the community may charge a pet community fee of $500 prior to the resident moving into the community with her beloved dog. This fee may be the only pet related fee or the community may require an additional monthly pet fee on top of the one-time pet fee.
Improvements – some residents prefer to choose specific finishes for their apartments. For instance, a resident may request that carpets be replaced with hardwoods, request that formica countertops be replaced with quartz, or request a particular paint color-scheme. Typically, the resident will be required to pay the full amount of these improvements even though the community may benefit from the improved finishes in the long-term. Depending on when a paint color-scheme choice is made, it may not require an additional charge.
Transfer Fees – transfer fees are charged by a campus community to transfer a resident from one care type to another (from independent living to assisted living for instance). Transfer fees are one of the few one-time fees that aren’t paid up-front, but paid while the resident is living in the community. To give an example of a transfer fee, a resident moving from independent living to assisted living in the same community may be charged a transfer fee of $2,000.
Transfer fees can be very frustrating for residents and adult children since they paid a community fee when the resident originally moved into the community, so it seems like they are being billed twice. Communities may counter that the apartment the resident is moving into could have been rented to someone else that would have paid the full community fee. They may also remind the resident of turnover costs in preparing the apartments, such as replacing carpets and painting.
Given the potential frustration for residents and their families, transfer fees are typically only charged by communities in “hot markets” where there are many seniors demanding senior living and relatively few options available.
Wrapping Up One-Time Costs
As we discussed, the two largest and most important one-time costs for senior living communities are community fees and entrance fees. Community fees are typically $1,000 – $10,000+ fees that are non-refundable and are charged by non-CCRC communities. Entrance fees are charged by CCRCs and range from $30k – $1M+, may be refundable, and vary in amount depending on several factors.
If you’re having trouble deciding between communities, apartment types, or fee types, it’s always helpful to get out a pen and paper or a spreadsheet to compare a couple of scenarios. As always, a financial advisor or CPA may be helpful in this regard.
In case you missed it, here is part one of this series, which breaks down monthly costs.
We hope this helps. If you have any questions or comments, don’t hesitate to reach out to us at firstname.lastname@example.org.