July 20, 2018
If you have begun researching continuing care retirement communities (CCRCs, also known as life plan communities), you have likely discovered that there are both for-profit (FP) and not-for-profit (NFP) options. The vast majority of life plan communities are NFP but the FP providers are beginning to grow their share of the market. Royal Oaks will celebrate its 35-year anniversary this year as one of the west valley’s most prominent NFP communities.
One of the key reasons many seniors are attracted to CCRCs is the sense of security they provide their residents, knowing they will be cared for should they need physical or medical assistance in the future. Some people have concerns about opting for a for-profit CCRC, worrying that if they should ever run out of retirement savings they will be “kicked out” by a community whose focus is on making money.
Most CCRCsboth FP and NFPdo reserve the right to terminate a resident’s contract under certain circumstances, but in reality, many CCRCs (for-profit and not-for-profit alike) strive to provide a home and assistance for residents even if the senior is unable to meet their financial commitment to the CCRC. Some FP providers do make it clear that they will provide notice that a resident must vacate if they exhaust their funds.
What is the real difference between the two?
When looking at CCRCs, it is important to understand how each community is run. We suggest you do your due diligence about the financial outlook of a community, regardless of whether it is a FP or NFP, because at the end of the day, any available financial assistance depends on the organization’s ability to provide these funds. But in the simplest terms, here are a few of the key differences between a for-profit and a not-for-profit CCRC:
Not-for-profit CCRCs keep earnings in the organization
Not for-profit CCRCs fall under section 501(c)(3) of the Internal Revenue Code. According to the IRS, a 501(c)(3) organization “must be organized and operated exclusively for exempt purposes” and “none of its earnings may inure to any private shareholder or individual.” Such entities are usually referred to as “charitable organizations.” Indeed, many prospective residents are attracted to the idea that earnings stay in the organization.
Not-for-profit CCRCs were often begun by faith-based groups or fraternal organizations. This often serves as the foundation for a strong mission-based culture that is attractive to many seniors. Royal Oaks was begun through members of Faith Presbyterian Church. People of all faiths enjoy living here.
For-profit communities have a responsibility to investors and/or shareholders.
For-profit CCRCs are responsible to corporate investors and/or shareholders who are interested in making money on their investment. According to James M. Moloney, Head of Real Estate and Co-Head of Tax-Exempt M&A at Cain Brothers in San Francisco, for-profits are “run from a financial return perspective, as opposed to the mission-in-perpetuity perspective of the not-for-profits.”
Which is right for you?
Whether you are thinking about a not-for-profit or a for-profit CCRC, the important aspects to consider are:
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