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Listen to what Estate Planning expert and Partner, Angela Harry, has to say about Granny Flat Agreements here
Elderly parents are taking advantage of Centrelink concessions which apply to “granny flats” in ever increasing numbers.
The state of the economy seems to have had a significant impact on our elderly population and there are many retirement villages and aged care facilities with very high vacancy rates.
A parent can sell their home under the granny flat provisions and pay money to their children for a life interest or the use of the “granny flat”. Normally these funds would be deemed to be a gift and would affect the pension entitlements of the parent. However, the ‘granny flat’ rules allow for any money paid to the parent’s children to be exempt from the usual deeming legislation by Centrelink. The requirements are quite flexible and you do not actually have to build a separate granny flat or a separate residence. As long as there is a designated room or area that allows for your exclusive occupancy and there is an agreement to support the arrangement, Centrelink will usually approve the arrangement.
It is very important to enter into a proper agreement in relation to the arrangement because no matter how close families are, it is amazing how many families have a falling out in this situation and the parent wants their money to be paid back.
There was a great example of this fought out in the Supreme Court in Brisbane recently. In the case of Peterson -v- Hottes  QCA292, a parent paid $70,000.00 to her daughter to assist in the purchase of a property worth approximately $300,000.00 in 2001. In approximately 2007 they had a falling out and the mother wanted a percentage share in the value of the property which had appreciated in value since its purchase in 2001. At first instance in the Supreme Court, the Judge did not find an equitable interest in favour of the mother and ordered the daughter to pay back the original funds advanced of $70,000.00. The mother appealed to the Qld Court of Appeal and in a recent decision, the appeal was successful and the mother was awarded a 25% equity share in the house, as well as a 25% share of rentals received from the property from the date she vacated the premises until resolution of the matter. Significantly, there was no written agreement entered into between the parties and the Court had great difficulty in attempting to sort out exactly what the intention of the parties was.
The fact that this family was tied up in litigation in the Supreme Court and a subsequent appeal to the Court of Appeal would have spent at least $100,000 over and above the amount that they were arguing about.
The granny flat exemption allowed by Centrelink is an excellent idea to provide solutions for elderly parents looking for a stable home and family support in their retirement. There is no doubt that sometimes this financial assistance can also be beneficial to the children involved as well. However, it is very important that the parties are very clear about the terms under which they enter into this arrangement and that they obtain a properly drafted legal agreement to accurately evidence their intentions. There needs to be provision for what happens if things turn sour and the parent needing money for a bond to go into an aged care facility.
It is also a good idea to make sure the wills and enduring powers of attorney are updated to marry up with the agreement. This way all family members are protected and everyone knows what is going on. Sometimes jealous siblings cause friction if they are kept in the dark.
For further enquiries on Granny Flat Agreements, please contact Attwood Marshall Lawyers on 1800 621 071 or email firstname.lastname@example.org