CCRC Entrance Fees: Refundable vs Non-Refundable

A 90% refundable continuing care retirement community (CCRC) contract on a $400,000 unit returns $360,000 to your estate whether you leave after two years or twenty. The same unit under a declining balance contract can return zero after roughly 50 months — for a lower entrance fee. That spread, often 10% to 20% of the upfront cost, is the entire decision. Everything else is timing and tax treatment.

The refundable-versus-non-refundable choice is usually framed as estate preservation versus cash flow. That framing misses where the money actually moves. The refundable premium is a bet on residency duration, the non-refundable discount is a bet on the opposite, and the federal medical expense deduction quietly favors the contract most people are told to avoid. This analysis maps the break-even points using 2024 Genworth Financial benchmarks, National Investment Center for Seniors Housing & Care (NIC) market data, and current IRS treatment of prepaid medical care.

The numbers that decide it

Five figures frame the entire entrance fee question. The entrance fee itself, the refund premium, the monthly service fee, the medical-deductible portion, and the refund erosion rate on declining balance contracts. Get these right and the contract comparison resolves itself.

Sources: NIC 4Q 2024 data; US News / care.com reporting of NIC Investment Guide 2024; LegalClarity and myLifeSite contract analysis (2024–2026); IRS Publication 502. Entrance fee range reflects variation across cited estimates.

How the two structures actually behave

Non-refundable is the older and still most common model. You pay a lower entrance fee, and the community keeps it. Once the trial period closes — typically 30 to 90 days — nothing returns to you or your estate, regardless of whether you stay three years or thirteen. The appeal is simple: the lowest cash outlay to secure lifetime access to the continuum of care levels a CCRC promises.

Refundable contracts split into two mechanically different forms, and conflating them is the most common error families make. A return-of-capital contract guarantees a fixed percentage — commonly 50%, 75%, or 90% — back to you or your estate no matter how long you reside. A declining balance contract starts higher but erodes on a schedule. According to contract analysis published by LegalClarity in 2026, a common declining balance structure reduces the refundable portion by 1% to 2% per month over the first 50 to 100 months. On a $400,000 fee amortizing at 2% monthly, you lose $8,000 of refund eligibility each month until it hits zero around month 50.

The premium for the guarantee is real and quantifiable. Industry sources including myLifeSite and HHH put refundable entrance fees at roughly 10% to 20% above the non-refundable price for the same residence, with 90% return-of-capital plans costing the most. A 50% refundable plan might run about 30% above the traditional plan; a 90% plan, more still. You are buying an option on your own estate.

Running the break-even

Take a single illustrative unit. The community offers it three ways: non-refundable at $350,000, declining balance starting near that figure, and 90% refundable at roughly $420,000 — a $70,000 premium, inside the 20% band. Assume the same $4,000 monthly service fee across all three and a resident who enters at independent living.

The 90% refundable contract returns $378,000 to the estate at any exit point. The non-refundable returns nothing. So the refundable contract’s net cost — entrance fee minus eventual refund — is $42,000 against the non-refundable’s $350,000. On that arithmetic the refundable plan looks dominant. But the $70,000 premium is capital locked up and not earning a return for the entire residency. At a 5% opportunity cost over a 12-year stay, that forgone return approaches $50,000 — enough to erase most of the apparent advantage. The longer the residency, the worse the refundable premium performs, because you are financing a refund you collect only at the end while the discount on the non-refundable plan compounds in your portfolio from day one.

Declining balance sits between them and resolves almost entirely on duration. Exit inside the first year and the refund is near-total, making it the strongest choice for a resident who may not stay. Cross month 50 and it converges with non-refundable — you have paid a slightly higher fee for a refund that no longer exists. This is the contract for households genuinely uncertain about a long-term commitment, not for those optimizing an estate.

Illustrative model by Finluxy using entrance fee premiums per myLifeSite/HHH (10%–20%) and declining balance schedule per LegalClarity (2026). Figures are scenario illustrations, not quoted community rates; opportunity cost of locked capital not reflected in net fee column and is discussed in text.

The Finluxy Care Cost Daily Rate

Entrance fees dominate the headline, but the recurring spend is what a household funds month after month. The Finluxy Care Cost Daily Rate expresses the all-in daily cost of the care level being analyzed — facility fee, ancillary services, and medication management — in dollars per day. For an entrance-fee CCRC at independent living, the monthly service fee is the operative figure.

Sources: NIC 4Q 2024 (CCRC monthly service fee); Genworth/CareScout Cost of Care Survey 2024 (assisted living $5,900/mo, nursing home private room $10,646/mo). Daily rate = monthly cost ÷ 30. CCRC figure reflects independent living entry; higher care tiers under Life Care contracts may carry little or no fee increase.

The daily-rate comparison exposes what the entrance fee actually buys. A Life Care (Type A) contract holder paying a CCRC daily rate of $112 to $139 at independent living can move into skilled nursing — a standalone $350-per-day setting — with little or no increase in monthly fee, because the entrance fee prepaid that care. The entrance fee is, functionally, a lump-sum insurance premium against the private nursing home rate that would otherwise apply.

What most coverage overlooks: the tax asymmetry

Nearly every guide to CCRC contracts treats the refundable-versus-non-refundable choice as a pure estate-versus-liquidity tradeoff. The federal tax code disrupts that framing, and the direction it pushes surprises people.

Because a CCRC contracts for future health care, the IRS treats a portion of the entrance fee as prepaid medical expense, deductible in the year paid under the rules of IRS Publication 502 and Revenue Ruling 93-72 — but only the non-refundable portion qualifies. A 90% refundable contract has only 10% of its fee exposed to the deduction. The non-refundable contract exposes the whole fee. Industry sources commonly cite deductible allocations between 30% and 50% of the entrance fee, set per community based on its aggregate medical costs.

Work the magnitudes. On a $350,000 non-refundable fee with a 40% medical allocation, $140,000 is potentially deductible in the year paid. Medical expenses are deductible only above 7.5% of adjusted gross income, so a household with $200,000 of AGI clears a $15,000 floor and can deduct the remaining $125,000. On the 90% refundable contract, the deductible base is a fraction of that. The contract marketed for estate preservation forfeits most of a six-figure deduction — and any later refund of a previously deducted amount can itself become taxable income. For households with the income to itemize and the liquidity to absorb the fee, the non-refundable structure carries a tax advantage that the standard estate-preservation pitch never mentions. Some planners deliberately pair the deduction with a Roth conversion in the same year to absorb the deduction against converted income.

Methodology

For the $150k+ household

At this income, the entrance fee decision is less about whether you can fund it and more about how the contract interacts with the rest of your balance sheet. Three thresholds matter. First, opportunity cost: a $150k+ household typically has the refundable premium — $50,000 to $90,000 on a mid-range unit — invested at a meaningful return, which means locking it into a refund collected only at exit is a measurably worse use of capital the longer the expected residency. Second, the itemization threshold: households with the AGI to itemize and the liquidity to pay a non-refundable fee outright can capture a large prepaid-medical deduction that lower-income or all-illiquid buyers cannot use efficiently, tilting the math toward non-refundable in a way generic advice reverses. Third, estate intent: if leaving a defined sum to heirs genuinely outranks tax efficiency and portfolio return, the 90% return-of-capital contract delivers certainty no other structure does — you are simply paying a known premium for it.

The cleanest decision rule that emerges from the data: choose declining balance only if you might leave within the first few years, choose non-refundable if you intend to stay long-term and can use the medical deduction, and choose 90% refundable only when estate certainty outweighs both return and tax considerations. Before signing, request the community’s written deductible-allocation percentage and its specific refund schedule in writing, run the entrance fee against your own assumed rate of return rather than the brochure’s, and weigh the whole package against the total cost of elder care options and your care funding target — because the entrance fee is a single line in a multi-decade elder care spending plan, not the whole of it.