Before the Entrance Fee: Reading a Life Plan Community Contract

A life plan community asks for something few other purchases do: a large sum now, in exchange for promises that may not be tested for fifteen years. The apartment, the dining room, and the garden are what you tour. The contract is what you buy, and it decides who pays when your health changes, what returns to you or your heirs, and how much rests on the operator remaining solvent.

Read it closely and you can decide which contract type suits your health and balance sheet, whether a refundable fee is worth its premium, whether a community’s finances deserve your money, and how to document the part of the fee the IRS treats as medical care. If you are still weighing alternatives, begin with comparing housing options without being sold one.

What a continuing care contract actually promises

Continuing care retirement communities, many now styled life plan communities, combine housing and care on one campus. The federal LongTermCare.gov guide describes the usual path: an independent apartment, then assisted living on campus, then the on-site nursing home if needed. Most charge a sizeable one-time entrance fee and a monthly fee.

California defines the product by its promise rather than its price: an agreement between a person 60 or older and a provider to supply a range of services for longer than one year in exchange for payment, usually but not always for life. Admission is selective: some communities require a health screening before you enter independent living, and providers told GAO that applicants must also submit detailed financial information, including income and tax records. Apply while you qualify.

Four contract types, and who carries the cost of care

The Government Accountability Office’s 2010 review (GAO-10-611) described four forms, separated by who bears the risk that care becomes expensive.

1. Type A, extensive or life care. Housing plus unlimited covered care, with little or no monthly fee increase as you move to assisted living or nursing care. Entrance fees are generally substantial; the community absorbs the risk of rising care costs.
2. Type B, modified. Only some care is included (GAO’s example is 30, 60, or 90 days of assisted living or nursing care), after which you pay a market or discounted daily rate.
3. Type C, fee-for-service. Possibly lower fees while you live independently, with all health services billed at market rates as needed. The risk sits with you.
4. Type D, rental. Generally no entrance fee; monthly charges follow the unit and the care you use.

Treat these labels as vocabulary, not a guarantee. California reserves “life care contract” for agreements promising all levels of care for life, including acute care and skilled nursing on or next to the premises, no fee change based on level of care, and subsidy for residents who become unable to pay. A Type A contract in effect prepays future care, so if you already hold long-term care insurance, weigh the overlap using care costs: the planning a widow now does alone.

Refundable, declining, and nonrefundable entrance fees

GAO described four refund structures: fully refundable fees, which tend to cost more at the outset; partially refundable fees, returning a set percentage within specified time limits; declining-scale fees, whose refund shrinks by a percentage each month; and fees that become nonrefundable after a set time. California notes that some contracts fully amortize the fee, leaving nothing for you or your heirs after the stated period.

Suppose you pay $900,000 under a contract that reduces the refund by 2 percent of the fee for each month of residence. After two years the refund would be $468,000; after fifty months, nothing. Paying more for a refundable plan is partly an estate decision: it preserves an asset for heirs, or for a change of mind. LongTermCare.gov adds that a refundable fee counts as an available asset if you apply for Medicaid, even when you cannot reach the money.

Two cautions follow. Operators told GAO that residents who exhaust their other assets generally draw on the refundable portion to pay monthly costs. And a refund is a promise, not collateral: GAO reported that residents could lose it if a community failed, and officials said their bankruptcy claims rank behind secured creditors such as bondholders. State officials believed such losses were rare, yet in one 2009 Pennsylvania case residents surrendered their refundable balances when an insolvent community was sold.

A refund is worth exactly as much as the balance sheet standing behind it.

Reading the community’s finances before you commit

GAO identified declining occupancy and unexpected cost increases as the chief risks to a community’s viability. Distress can surface as fee increases beyond those the contract anticipates.

In every state GAO reviewed, providers had to disclose financial information before signing. California requires annual audited financial statements from a licensed certified public accountant, annual reserve reports, and delivery of the annual report to residents within 10 days of filing. Ask for these, and have your accountant read them:

• the disclosure statement and every contract form offered;
• three years of audited financial statements, with notes;
• occupancy at each level of care over several years;
• the debt schedule, bond covenants, and rating reports;
• the latest actuarial study; and
• the history of monthly fee increases.

GAO found that most states it reviewed set reserves for short periods such as six months or a year, and that only four of the seven with CCRC-specific rules examined trended financial data or required periodic actuarial reviews. Lenders often demand more, so the bond documents may tell you more than the license.

Why the state you choose shapes your protection

An industry study cited by GAO counted 38 states with CCRC-specific regulation as of 2009, and 12 states plus the District of Columbia without it. The overseeing agency varies, from departments of insurance, financial services, or banking to social services, aging, or community affairs.

California shows a fuller regime: its Department of Social Services permits providers before they take deposits, controls those deposits in escrow, approves each contract form, and can seek a court-appointed administrator for a provider in unsound condition. Even so, the department says its authorization is neither an endorsement nor a guarantee of performance, and urges financial and legal advice before signing.

Cancellation rights differ too. By the industry study’s count, 30 of those 38 states required a cooling-off period, ranging from before occupancy to a year after it. Find yours and diary it.

Moving between levels of care, and who decides

The decision to move you from your apartment to assisted living or nursing care can be a point of contention, GAO found. Residents risk an involuntary transfer, or no on-site bed when needed and a placement elsewhere until one opens. Transfers are often governed by state law, and not every state requires communities to disclose their transfer policies.

Find the answers in the contract, not the brochure: who decides a transfer, on whose medical opinion, what appeal exists, when a permanent move releases your apartment, and how the fee changes. GAO also noted that the contract and the residents’ handbook are different documents, a difference some residents grasped only when handbook changes touched services they had believed guaranteed.

The share of the fee the IRS treats as medical care

Publication 502 lets you include in medical expenses part of a life-care fee or “founder’s fee,” paid monthly or as a lump sum under an agreement with a retirement home. The includible part is the amount properly allocable to medical care, and the agreement must require a specific fee as a condition of the home’s promise of lifetime care that includes medical care. A statement from the community can prove the allocation if it rests on the community’s prior experience or on information from a comparable home.

The 2025 edition of Publication 502, current as this is written, allows a deduction only for total medical expenses above 7.5 percent of adjusted gross income, and only if you itemize; confirm the edition for the year you pay. For 2026 the basic standard deduction is $16,100 for a single filer and $32,200 on a joint return, which Publication 501 lets you file for the year your spouse died if you have not remarried, each with a higher amount at 65 or older. The IRS notes that the One Big Beautiful Bill Act limits the tax benefit of itemized deductions in the 37 percent bracket, which in 2026 begins above $640,600 for single filers and $768,700 for joint filers. Publication 502 does not say how a refundable portion of the fee is treated, so obtain the allocation letter before you pay, and settle that question and the year of payment with your tax adviser, especially if a house sale funds the fee; our guides on keeping or selling the house and timing a move around everything else cover that sequence.

Questions to ask before you sign

1. What does each contract offered promise, in writing, at every level of care?
2. How is the refund calculated, and is payment tied to re-occupancy of my unit?
3. May I see the disclosure statement, audited financials, and actuarial study?
4. What are occupancy by level of care and the community’s total debt?
5. How have monthly fees risen over the past decade?
6. Who decides a transfer between levels of care, and how would I appeal?
7. What happens if no on-site bed is available when I need one?
8. Which agency regulates this community, and how long is my cancellation period?
9. Will you state in writing the portion of my fee allocable to medical care?
10. What happens to my contract and refund if the community is sold or closes?

This article provides general U.S. educational information and is not legal, tax, or investment advice. Contract terms and state protections vary; confirm current rules with your state regulator and advisers who know your facts.