Leading Age, December 11, 2014Entrance Fee Rebates

The Entrance Fee RebatesThe Future of CCRC Fundraising

Today’s Speaker

• Joe Anderson, President, ABHOW Foundation

– Three decades of experience in senior housing

– Twentieth year with ABHOW

– Sales and marketing experience

– National speaker on sales, marketing and foundation work

The ABHOW Foundation

• Founded in 1968, separate corporation, separate board of directors

– Assets of about $47,000,000

– Eleven CCRCs with endowments of $34,000,000

– Support 34 low-income communities

– Have over 240 charitable gift annuitants

– Have distributed more than $31,000,000 in benevolence funds since inception

History of the Rebate/Refund

• Unknown or isolated cases prior to 1982:– Some experimentation with equity return in various

forms

• Traditional amortizing entrance fees:– Face value amortizes at a certain percentage per

month until no refund is due– Standard percentages were 1.5% or 2% per month [50

to 66 month amortization period]– Care for life guaranteed with contract but funded out

of endowment or operations funds– Sometimes resident gave all assets in exchange for

lifetime care [fraternal approach]

Breaking Ground

• In 1982 Lifecare Services [LCS] introduces its “Return of Capital” program:

– Beacon Hill

– Friendship Village

• Concept gains recognition and advances on the positive coverage by Carter Randall in the Wall Street Journal

Adoption By The Market

• Entrance Fee Refunds [Rebates in some states] become significant options in the 1990s:

– Formulas developed to allow sponsors to offer both amortizing and refundable entrance fees

– Increasing home prices in the 90s and 00s made more “equity” available. Asking for a higher entrance fee became less of a problem

Support For Financing

• A larger entrance fee pool creates the ability for a sponsor to pay down more debt

• Almost all new communities built in the last decade have offered 90% refundable entrance fees with additional %s available to Charter Members or early depositors.

• Other prominent options: 80%, 75%, 50%

ABHOW Entrance Fees

Year Rebateable E.F.s E.F. Rebate Pool

1990 0 $0

2000 8 $2,192,000

2013 460 $103,468,000

2017 815 $231,376,000

• Redevelopment of old communities:• Terraces of Phoenix• Judson Park• Terraces of San Joaquin Gardens

• Addition of new communities:• Terraces at Los Altos• Terraces of Boise

Unintended Consequences

• Insurance policy for the sponsor– Most contracts allow refunds to be drawn

down if resident runs short of funds to may monthly fees

• Sales stimulant for adult children– Amortizing fees were “lost money” to the

estate

• New bequest source for the Foundation– Tell me more….

New Donation Source

• Entrance fee refunds or rebates are:

– An asset segregated at contract signing

– Do not grow in value – Because of inflation they lose value

– Resident contracts allow the donation of a dollar amount or percentage donation:

• Without involvement of family, an attorney, financial advisor or broker

Sharing the Wealth

• Some evidence of the entrance fee rebate being shared with other charities:

– Distributions to the CCRC sponsor at 100% rate.

– Will distribute to other non-profits as designated by the resident with a 5% charge by the Foundation

Tax Implications

• Tax deduction for the entrance fee donation

– The ABHOW accountants have determined the tax benefit accrues to the estate, not to the resident [No deduction in the year of the gift]

• Tax consequences for the estate

– If the resident knows there will be estate taxes, the E.F. rebate is one way to gift and avoid taxes.

Education of the Market

• Local Foundation committees

• Inclusion in all presentations to residents

• Inclusion in all presentations to local boards and management teams

• Annual reminder presentation to sales counselors

• Collateral material: EF Rebate brochure, inclusion in newsletter, E-newsletter

Discussion