by Scott Christianson, CFP®
Executive Vice President
Portfolio and Wealth Management
As we grow older, many of us will need to decide where to live next when our current home becomes too difficult to manage, and assistance is required. Deciding when and where to move can feel daunting, as can the various financial arrangements available to pay for the move.
Senior living communities can be broken down into three broad categories with progressively more care available as needed: independent living, assisted living (and memory care) and nursing homes. A popular progressive care option, known as continuing care retirement communities (CCRCs), focuses on the principle of aging in place.
Senior Living Communities
Independent living communities serve seniors who are self-sufficient and prefer less maintenance and more social interaction. These communities offer private homes, dining, housekeeping, activities and occasional support. Ranging from urban high-rises to sprawling suburban communities, residents have plenty of options and autonomy within a community setting.
Assisted living communities help older adults with daily tasks while promoting independence. Residents may receive assistance with dressing, bathing, medication and enjoy amenities, social events and memory care in a safe environment.
Nursing homes provide 24/7 skilled care for those with major medical or personal needs. They offer nursing, daily living support, therapies and supervision for individuals needing consistent medical attention.
CCRCs offer a full spectrum of progressive care options: independent living to nursing care—within one community. Residents can transition between levels of care as needs change, providing long-term stability and convenience.
Buy-ins and CCRCs
CCRCs typically have two costs: an entrance fee (or buy-in) and ongoing monthly fees. Entrance fees vary widely depending on location, amenities and unit size, from tens of thousands to hundreds of thousands of dollars. Monthly fees depend on services and care levels and can be substantial. Many communities provide flexible payment options, often trading lower entrance fees for higher monthly fees. Some also refund 50%–90% of the entrance fee to the resident’s estate. Depending on one’s resources and estate plans, this can be a positive or negative arrangement.
Medical Expense Tax Deduction
A tax deduction may be available if part of the entrance and monthly fees are classified as medical expenses, typically ranging from 10% to 40% of the total. This is calculated by the administrator of the community. To qualify, eligible expenses must exceed 7.5% of your adjusted gross income (AGI). For example, with an AGI of $200,000, only expenses above $15,000 are deductible. The largest deductions usually occur in the first year due to the entrance fee. If part of the entrance fee is refundable to
your estate, only the non-refundable portion counts toward the medical expense deduction; for instance, with 80% refundable, just 20% is considered, and of that, only the amount attributed to medical expenses is deductible.
For communities with substantial entrance fees, the medical expense deduction —which does not carry over to future years—may exceed your taxable income, limiting your ability to use the full deduction. In such cases, increasing your taxable income that year through strategies like a Roth IRA conversion or realizing capital gains can help maximize the tax benefit. Given the complexity and tax implications,
we encourage reviewing your options with your Ferguson Wellman and West Bearing team as well as your tax advisor, well ahead of considering a move.
Selecting a senior living arrangement is a major decision. Understanding the types of communities, variability in offerings and financial implications can help ensure the next move is the right one.