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Sometimes in life we need to think outside of the square in terms of lifestyle and convenience. Organising a move when your older into a child’s home via a Granny Flat can be a fantastic opportunity. If you are thinking of downsizing and moving in with the children, there are a few things you need to consider in the world of granny flat development, living arrangements and lifestyle as well as how to prevent disputes and relationship breakdowns.

Some of the Financial Benefits

A Granny Flat does not attract Stamp Duty or Capital Gains Tax and neither does it have to be purpose-built, so therefore it is an affordable and realistic option in a society where aged care costs are on the rise. 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’. Normally the transferred property or 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 property transferred or money paid to the parent’s children to be exempt from the usual deeming legislation by Centrelink.

Some other options are that you pay for the building of a granny flat in your child’s property, you update an existing space in your home or in their home to a granny flat, or you purchase a new property together for this express purpose or you pay your child a lump sum of money to reside in their property.

Granny Flat Agreements simplified

We would always recommend a Granny Flat Agreement to protect both parties and avoid costly and emotionally painful issues in the future. That GF Agreement would cover issues such as:

  • Right of occupancy for life
  • Payment has been made for the right of occupancy and this can occur in various ways
  • Expectation management: what will you be providing to your child’s family and what can you expect in return, particularly if you want free time
  • What care needs can you reasonably expect to have covered and when the time comes if you need to more to an Aged Care Facility, what will happen to your interest in the property and how would a bond be paid
  • Are there any further outgoings once the lump sum is paid
  • What are the privacy considerations
  • How often the Agreement will be reviewed and updated
  • Your Estate Planning requirements.

This type of Agreement will assist if there is a relationship breakdown and go some way to avoiding Court.

Estate Planning and the Granny Flat

Both parties need to be aware that once the lump sum is exchanged 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. This means that upon the death of the parent any property or money handed over to the child will not be distributed in accordance with their will. It is, therefore, 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.

Government view of Granny Flat Agreements

Centrelink recommends that a properly drafted Granny Flat Agreement that shows your interest in the property is drafted. One of the parties needs to obtain Independent Legal Advice apart from the lawyer who drew up the Agreement. This also assists in keeping any dispute out of the Courts.

If you would like further advice, please contact Digital Age Lawyers on 02 8858 3211.