My wife and I are signed-up for a local CCRC that offers no return of the entrance fee after the first 52 months - so zero if you live another 12 or 15 years. If you are looking at a CCRC that offers a 75% return when you "leave", they are basically charging you the amount of a zero return enhance fee now, and also "renting" the balance ($200K ???) from you until you die. This gives them more working capital than a lower, zero return, entrance fee. There is an implied annual interest rate, based on your actuarial lifetime at entrance, until you "leave". You could call this rent, or you could call it an annuity interest rate. Either way, it can be calculated if you know what their zero percent return entrance fee would be - or the zero return entrance fees of other comparable CCRCs.
The interest rate could be favorable to you, as an incentive to choose that CCRC, or it could be a bad deal for you, compared to investing $200K or putting $200K in a market rate annuity. If it is a bad deal for you, they are just assuming you, or your heirs, like money-back at death and will not do the calculation.
I do realize this is your money, not your mother's, but the principle is the same.
Separately, depending on your mother's income and income tax rate, and if perhaps 33% of the entrance fee is tax deductible as a current medical expense, to the extent that amount exceeds the IRS specified percentage if her income before medical expenses are deductible, it could be in your family's interest to have your mother use her money, against her income and tax rate, even if you have to give her the money - especially if you expect you will never be subject to estate tax. I doubt you can use your money and then apply any deductible amount to your mother's income taxes. Either way, it would seem if "someone" realizes a tax deduction now, that "someone" cannot count the future refundable amount as "only" a return of capital. It seems there would be a gain related to the past realized tax deduction - but that question is beyond my tax knowledge.
The interest rate could be favorable to you, as an incentive to choose that CCRC, or it could be a bad deal for you, compared to investing $200K or putting $200K in a market rate annuity. If it is a bad deal for you, they are just assuming you, or your heirs, like money-back at death and will not do the calculation.
I do realize this is your money, not your mother's, but the principle is the same.
Separately, depending on your mother's income and income tax rate, and if perhaps 33% of the entrance fee is tax deductible as a current medical expense, to the extent that amount exceeds the IRS specified percentage if her income before medical expenses are deductible, it could be in your family's interest to have your mother use her money, against her income and tax rate, even if you have to give her the money - especially if you expect you will never be subject to estate tax. I doubt you can use your money and then apply any deductible amount to your mother's income taxes. Either way, it would seem if "someone" realizes a tax deduction now, that "someone" cannot count the future refundable amount as "only" a return of capital. It seems there would be a gain related to the past realized tax deduction - but that question is beyond my tax knowledge.
Statistics: Posted by fourwheelcycle — Thu Jan 04, 2024 6:33 pm — Replies 6 — Views 241