Deceased Mom’s Buy-In $ from Encore Village Returned to Family

Terry Says

That’s an interesting question, and I had to do a little research. It seems there are two questions inside your post.
First is — Who gets the refund? Here’s what I found:
The probate process is the legal procedure by which the assets of a deceased person’s estate are distributed according to their will or state law. When a CCRC resident dies and a full or partial entry fee refund is due, that money may or may not go through probate.

Refund paid to the estate: If the entry fee refund is paid to the resident’s estate, it will likely go through probate as part of the estate’s assets. In essence, the refund will be treated like any other asset that needs to be distributed.
Refund paid to beneficiaries: If the entry fee refund is paid directly to designated beneficiaries, it may bypass probate if the community’s contract allows for this and if the beneficiaries are named explicitly. In this case, the refund is distributed outside of the formal probate process. In some cases a resident may name a trust as the beneficiary.
It’s important to check the CCRC contract’s refund terms to determine whether the refund is made directly to beneficiaries or the estate. It is also essential to consult with an experienced estate attorney and/or accountant who understands the unique probate laws within the applicable state.

The second issue is taxability. That seems to depend on whether this is a “return of a deposit” (which was made with after-tax money) or whether this is the “sale” of a unit or right to live in the community(in which case there may be some taxable appreciation, which would be taxed at capital gains rates).

So it’s important to contact the CCRC that sent you the check and ask: Are they reporting this as a “return of initial investment” — or is there some appreciation value and are they reporting this payment to the IRS as some form of capital gain? Even if it is a capital gain, since there is a step-up in “basis” at death, it’s unlikely there would be taxes due.

But either the beneficiaries or the estate — depending on who actually receives the refund check — should find out from Friendship Village how they are characterizing this payment for tax purposes. And get it in writing from them.