What Are Granny Flat Agreements?
When discussing “granny flat” arrangements, many people visualise a small dwelling in the backyard built specifically to accommodate an elderly person, however, the concept of a granny flat arrangement can be much broader. A granny flat agreement can be used to describe a living situation where money, assets, or the title to one’s home have been transferred in exchange for a right to a lifetime accommodation in a private residence. Whilst commonly arranged between parent/s and a child or children, there are no age or family relationship rules or requirements.
Understanding Granny Flat Arrangements
For social security purposes, a parent can transfer or sell their home under the granny flat provisions and pay money to their children for a lifetime right or the use of the “granny flat” (the ‘granny flat interest’). This can be done by:
- transferring the title of the house to another person
- providing funds to build accommodation on another person’s property
- purchasing a house in another person’s name
- paying a ‘reasonable’ amount of money to a relative
Normally the transferred property or funds would be deemed to be a gift and would affect the pension entitlements of the parent. However, ‘granny flat’ rules allow for any property transferred or money paid to be exempt from the usual deeming legislation by Centrelink.
What Type of Property Falls Under This Agreement?
A separate structure or ‘granny flat’ isn’t necessarily required, however, there must be a designated room or area that allows for a parent’s exclusive occupancy and there must be an agreement to support the arrangement.
Conditions that must be satisfied for the ‘granny flat right’ to be established include:
- Right of occupancy for life in a residential property
- Payment has been made for the right of occupancy
- The granny flat resident does not own the property in which they reside
What Should the Agreement Include?
At the very least, the agreement should confirm security of tenure in the property and state whether the granny flat resident is liable for any upkeep of the property or payment of rent. Other factors that should also be considered in the agreement include:
- Who does what (cooking, cleaning, washing etc)?
- Who pays for what (rates, outgoings, insurance, maintenance, upkeep)?
- How much privacy will the granny flat resident have within the home?
- What happens in the event that the granny flat resident’s health deteriorates and care needs change (for example if they need to be placed into a nursing home or similar care facility)?
Other Things to Consider When Contemplating a Granny Flat Agreement
When there is a transfer of property as a consequence of a granny flat agreement, if the granny flat resident is in receipt of a pension, Centrelink’s rules require that granny flat resident does not have any proprietary interest in the property and that they have the right to lifetime accommodation.
If the Centrelink rules are complied with, there will be no adverse consequence for the pension.
Powers of Attorney
Is there a power of attorney in place? If the attorney under a financial power of attorney is also a party to the granny flat agreement, this could be a conflict of interest. Additionally, both parties must also be aware that once the money is given in exchange for the granny flat interest, the money no longer forms part of the parent’s estate. The right only exists in the parent’s lifetime. Upon the parent’s death, any property or money handed over to the child will not be distributed in accordance with their Will. Therefore, it is a good idea to make sure the Will and Enduring Powers of Attorney are updated to reflect the granny flat agreement.
Things can change and no one has the ability to know what will happen in the future. Therefore, it is important to plan for a variety of ‘what if’ scenarios, for example:
- What will happen if the child’s marriage breaks downs?
- What if the relationship between parent and child breaks down?
- What if the child has financial problems?
It is vital that the granny flat agreement includes all accommodation, care, and financial arrangements that will occur if any of these situations arise.
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