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I have a client in his 90's who is considering moving into a retirement community that requires a $200,000.00 deposit. Once he passes, this deposit is supposed to be passed back to his heirs. However, he wonders what would happen if the community goes bankrupt. Is there an insurance policy he could by to protect his deposit?

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I have never heard of an insurance policy that offers to cover that particular loss. I hope someone else can answer that for you.

Jane Bryant Quinn covered these types of contracts in her book How to Make Your Money Last. She suggests that someone considering this move should ask for the audited financial statements of the community and have them reviewed by their own accountant. She spoke about looking at the occupancy rates, look for annual rate increases (you want to see reasonable increases - not no increases!) and if it's a type A contract, you want to see if they have enough young residents to make the contract actuarily sound.

I think some of these communities did go bankrupt in 2008/2009, Maybe you could research what happened in those cases in your client's state.
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Good advice, Alice, especially to review audited financial statements.   Given the amount of deposit, I think that would be mandatory, and the first step before going any farther.

Susan, I would contact my own insurance agent and ask her/him about ranges of policies that might apply to this situation, and/or what kind of agent would handle this so you can pursue it.

Honestly, I gasped at the $200K deposit.   That actually should cover monthly costs at about $5K for over 3 years.  (I'm assuming $5K b/c that's about the minimum in this area, so it's just a ball park estimate.)

This really strikes me as very, very odd.    Perhaps others with retirement home community experience have more insight, but something seems amiss with this demand.

Is this standard for retirement communities in your area?

I'm wondering also why the retirement home is deciding that the balance, if any, should go to the heirs.  What if the client wants to donate it to charity?  Or is this just the way the community anticipates that any balance would be handled?     (I rather suspect the community will find ways to ensure that there won't be much of a balance.)

If you or your client does go ahead with this plan, I'd make sure his Will and other documents are prepared according to his wishes.   I could this community ownership finding all sorts of ways to add charges that add up what his monthly and other costs would be.

The more I think about this the odder it sounds.
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ImSusan2 Mar 2020
It's a similar situation to what others have listed above. We have many many facilities here in Illinois with this set up. You pay the deposit to buy into the community. You also have to pay a monthly rental price for your unit. As others have stated, you move into more advanced care as that becomes necessary, still paying whatever the monthly charge for the increased services is. If you run out of your own funds, then they begin to use up your deposit money. Once that is exhausted, they apply for medicare / medicaid for you and that picks up the continued cost until you pass. If you pass away before the deposit has been depeleted, then the balance, if any, goes to whoever you have listed in your will. It can go to your heirs, a favorite charity, the home itself, anyone you choose.

I am an insurance agent but don't handle this kind of insurance. I called a bonding company to ask if my client could purchase some type of fuduciary bond to protect his interest but the underwriters had not heard of that before. I thought there might be a specialty bond someone on here might know of because this is a very common senior retirement option. At least it is very common here in Illinois. I'm assuming that these homes must be backed by some type of guarantee fund. I don't believe a private or public entitiy is allowed to and manage money for someone without being properly bonded. I also don't like the sound of it but I supposed if you did it and then didn't like it they would have to refund your deposit with interest and you could just move out. I even tried googling "nursing home insurance" and "nursing home bonds for deposits" and all that gets returned is renters insurance to protect your personal property and personal liability.

I suppose I can just recommend that my client ask to see the retirment homes license and bonding and I could review that for them. However, what's to say it all looks good up front but then the facility lets the policies lapse? It would seem like getting a certificate of insurance from the facility each year to prove that insurance is in force might be one solution. My client could request that he be listed as an additional interest in regard to his deposit. There are just so many ways that a senior can be taken advantage of.
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Just out of curiosity, I did some quick checking:

1.  I learned that a $100K deposit isn't unusual.   However, there are some other good tips from AARP that might help you and your client:

https://www.aarp.org/caregiving/basics/info-2017/continuing-care-retirement-communities.html

No. 10, reviewing the residency agreement, wouldn't be  a question I would ask; it would be an issue on which I would insist.    And if the client has to sign, reviewing it would be his right anyway (sometimes AARP can be quite "basic").

According to AARP, there are 3 types of communities.   The site also includes limited references for additional information.

2.   This site is much more helpful, if not shocking.  

https://www.elderlawanswers.com/continuing-care-retirement-communities-ccrcs-12050

I found a section addressing  the IRS restriction on rolling over capital gains from sale of a home.   The site is copyrighted, by the attorneys hosting it, so I can't legally copy from it.

Read the 2d paragraph beginning with discussion of the cost downsides of retirement communities. 

I had periodically thought about this myself, thinking at the time that it was far more expensive than I could ever afford.  Now I know that it's completely out of the question for me.   I'd have to win a lottery to afford that kind of living.
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FloridaDD Mar 2020
The IRS rollover provisions have been repealed.  You get to defer 250.000 of gain (500K if married) as  long as you have lived in the house enough years.
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My friends MIL was in one of these and they were continually having to fight the facility, she was in a 2 bedroom apartment and they started saying that she needed more care after only a few months. Her needs had not changed, it was a bait and switch. They moved people in and then started warehousing them by moving them into studio apartments to meet care needs that were supposedly part of the original arrangement.

I don't trust any company that requires hundreds of thousands of dollars and monthly fees that contractually gives them ALL the power. Where is the customer care?

Read everything with a fine tooth comb and a dictionary, ask questions in writing and require answers in writing.
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This person needs a lawyer to go over the contract. We have one of those Communities where I live.

They work like this. You put in a 200k deposit. This gets you an independent living apt or cottage that you still need to pay fee. For a person I know, that was $1400 for a one bedroom apt. You could eat in a dining room.

Then when u need more help, you go to the AL part. Still paying a fee. The 200k comes in when u need LTC. I think its 90% goes towards your care. When that is gone, then they apply for Medicaid.

Not sure if I am 100% correct but thats pretty much the basic premise.
This is great for someone with no family. But my GFs mother did have problems when her SIL transitioned to LTC having them say the deposit would not be used. She fault that. I would think these Communities would have to put the deposit in an interest bearing account that was covered by FDIC.
Thats why I would have a lawyer look over any contracts to see how this money is handled. He can help you determine if insurance is needed.
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If this community is large enough & has been around long enough, and your client is in his 90s, I would not worry about bankruptcy in the next few years!!

We have a community here called Windcrest which is similar. There is a buy in of about $500K which guarantees care for LIFE, even if the resident runs out of money. Again, not likely to happen to your client since he's in his 90s already. This is only relevant for people buying in at a much younger age, like my cousins did, at 70. They have a 2 bedroom unit in IL which they pay $3500 a month for and that includes 20 meals a month in any of their fine dining restaurants on the premises. If/when they need AL, they'll be moved into that location and pay the appropriate monthly costs, same with Skilled Nursing/Memory Care/Cancer Care, etc. If/when their savings run out, the $500K buy in is used to finance their care. That money WILL be used up if needed. If not used, it will be kept in an account and returned to the estate upon death.

I know nothing of an 'insurance' policy such as you are seeking. But hey, insurance is available, for a price, for just about anything on earth, so call an agent!

Good luck!
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Good Idea!!
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