How do entrance fee or “buy-in” senior living community contracts work?

Often referred to as “buy-in” communities, most Life Plan communities collect a one-time entrance fee from new residents at move-in. The amount of the entrance fee is based on several factors, including floor plan size and location. Ordinarily, residents pay their entrance fee from their investments, savings and proceeds from the sale of their house.

What’s it for?

Entrance fees ensure a community’s successful operation. They serve to:

• Keep the community financially viable
• Provide, maintain and upgrade services and amenities
• Support building improvements, including some updates and renovations

Entrance fees also greatly benefit older adults seeking a peace-of-mind plan for care as they age. These fees will:

• Help the community assume the risks associated with delivering residents life-long care — including priority access to assisted living or residential living, memory support, and skilled nursing — at below-market rates
• Guarantee care for life in a non-profit community — even if the resident exhausts their financial resources through no fault of their own

Is there more than one kind of entrance fee?

A sales counselor can help you understand different entrance fee options and select what fits your needs. Depending on the contract chosen, the entrance fee may be partly refundable when the resident leaves the community.

Traditional entrance fees

Often the lower-cost option, traditional entrance fees amortize to zero over the term specified in the contract, returning nothing to the resident or their estate after that term concludes.

Refundable entrance fees

While the levels of refundability vary, a portion of the entrance fee returns to the resident or their estate when the resident leaves the community. You might be given a choice of two or more refundability options — commonly 50, 80 or 90 percent — for the residence you select. In this case, a lower-cost entrance fee delivers a lower refund, and a higher-cost entrance fee offers a larger refund.

A tax break.

In the community, residents don’t pay property taxes for their residence. In a community that provides health care services, residents may qualify for tax breaks on the portion of the entrance fee and monthly fees attributable to the cost of future health care. A consultation with your tax advisor is recommended.

What if there isn’t an entrance fee?

When a community doesn’t collect an entrance fee, it usually offers lease contracts. Residents will pay monthly rent. While some prefer the flexibility of a rental arrangement, which doesn’t tie up personal assets in an entrance fee and makes relocation away from the community easier, the community often suffers from a less stable pool of residents, making sustained friendships among residents more challenging.

The rent for a lease contract is usually higher than the monthly service fee in a buy-in community. And because the community doesn’t collect and manage entrance fees from all residents, it can’t guarantee residency: if your financial resources become depleted so that you’re unable to make monthly rent, you’ll be asked to leave.

An investment in your peace of mind.

Think of an entrance fee as an investment that lowers your monthly fees and the amount you’ll pay for future care — and secures your place in a community that will be your home for the duration of your life.