As our population is living longer, it is understandable that people want to stay at home for as long as possible. However, residing in your home may not be practicable. For example:

• you may have aged parents who reside a distance from you in a remote area and there may be discussions about your parents moving closer for safety and convenience; or

• you may have only one parent surviving who is residing in a home far too big for them; or

• you may have only one parent surviving who can no longer afford to live alone.

What is a Granny Flat Agreement?

In these types of scenarios, it is common to consider a Granny Flat Agreement. 

A Granny Flat Agreement is an agreement that is drawn up when a parent, or parents, may sell their home and financially contribute to the purchase of a larger home or the building of a separate residence on a child’s property in exchange for the child providing the parent or parents with care.

A Granny Flat Agreement is essentially a private family agreement. However, depending on the circumstances of the parties it is necessary to consider a number of different matters.

When should you consider a Granny Flat Agreement?

A Granny Flat Agreement might be considered in some the following circumstances:

• If a parent or parents, sell their home and fund the building of a separate residence on a child’s property. Where a child owns acreage, this scenario is quite common.

• If the parent or parents buy a property in the name of their child on the condition that the parent or parents can reside at the property for life.

• If a child agrees to relocate or move in with their parent or parents to ensure home care is provided for as long as possible, and the parent or parents agree to transfer legal title to their child.

Why is a Granny Flat Agreement important?

Risk to estate

A Granny Flat Agreement generally means that a parent or parents will be paying out a lump sum of cash (which may be significant). Alternatively, they may be transferring out of their names a significant asset (such as a home).

If the parent or parents have more than one child and there is one child benefiting significantly from the other children, this may introduce the risk of a claim being made against the parents’ estate.

If any of the scenarios above are taking place, it is crucial that mum or dad consider their estate planning and what impact the granny flat arrangement may have on their estate.

The obligations of the parties must be clear

Where a parent or parents are contributing funds or transferring an asset in exchange for care as they mature, it is important that the agreement reflects exactly what the obligations of each party are.

For example, the agreement may state:

• The child’s obligations to care for the parent, provide travel to doctors and specialist appointments and general house care assistance such as washing, ironing etc.

• What area the parents reside at the property, and their obligation to maintain this area of the home.

• How expenses will be covered. There may be an obligation for the parents to assist with the payment of utilities or other day to day expenses.

• What happens if the property has to be sold – in this case, a refund may need to be made to the parents.

Centrelink gifting rules

For any elderly on Centrelink pension, they will be aware of the gifting rules. 

The gifting rules provide that the person receiving the pension cannot make any gifts of money over a certain threshold. 

However, Centrelink does exempt a payment of money for a Granny Flat Agreement if the parent pays a ‘reasonable amount’.

In the circumstances that the amount is not considered reasonable by Centrelink then the parents’ pension may be impacted by any amount that Centrelink believes was gifted.

If a family member is contemplating an arrangement where a Granny Flat Agreement may be necessary, please do not hesitate to contact us for advice.