Housing affordability for younger adults and rising aged care costs for the elderly are major financial dilemmas facing Australian families today. Increasingly, families are thinking outside the square to meet their needs and goals and a granny flat interest is a potential solution.
A granny flat interest provides social, wellbeing and financial benefits by allowing multigenerational families to live close together and at the same time provide loved ones with a first home or investment property.
For social security purposes, a parent can transfer or sell their home under the granny flat provisions and pay money to their children in exchange for the lifetime right to housing (a granny flat interest) and for their ongoing care.
Under normal circumstances the transferred property would be deemed a gift and affect the pension entitlements of the parent. However, the ‘granny flat’ rules allow for an exemption from the usual deeming legislation by Centrelink.
To ensure the elderly parent is not put at a disadvantage – or worse, left homeless, it is advisable to have a lawyer draft a legally enforceable Granny Flat Agreement. The agreement should make clear:
- that elderly parents have secure tenure of the property;
- whether elderly parents are liable for any payment of rent;
- who is responsible for care and what care is given;
- who pays for utilities and upkeep of the property;
- how much privacy everyone is entitled to;
- how much independence elderly parents will have;
- what expectations are placed upon elderly parents in terms of time spent with grandchildren and childcare; and
- what happens if things turn sour, or a parent needs access to money to enter an aged care facility.
Once any property is given to a child in exchange for the granny flat interest, the asset no longer forms part of the parent’s estate. Therefore, it is a good idea to update Wills and enduring powers of attorney to reflect the agreement.
A Scammell & Co. lawyer can advise on and draft a Granny Flat Agreement taking into consideration your unique needs and circumstances.
Image courtesy Compare the Market