Granny Flat Agreements
A Granny Flat Agreement is a way to help elderly parents maintain a pension and Centrelink concessions such as Rent Assistance.
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Many families enter into an informal agreement between themselves about how older family members could be cared for while living in a granny flat on a family property.
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However, if the relationship between parents and children breaks down, the relationship of the younger family members fails or the promise of care is not delivered, the older family members person may be put at a disadvantage. In some cases, they may even be left homeless.
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The use of legally enforceable family agreements is a useful measure in protecting the rights of the older family members. A legally binding Granny Flat Agreement individually drafted by a lawyer to suit your particular circumstances is the best way to protect your rights.
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Granny flat interest
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For Centrelink purposes, a parent or parents 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’). Under normal circumstance, the transferred property or money would be deemed to be a gift by Centrelink and could affect the pension entitlements of the parent or parents. Using the ‘granny flat’ rules allows for any property transferred or money paid to the parent’s children to be exempt from the usual “deeming” legislation.
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What type of property can be covered by such an agreement?
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The requirements are quite broad and flexible and you may not actually need to build a separate residence. As long as there is a designated room or area that allows for a parent’s exclusive occupancy and there is a formal agreement to support the arrangement, Centrelink will usually approve it. Loft rooms, a duplex, a separate room in a flat or unit, can all come under the umbrella of a granny flat agreement.
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Transferring assets in exchange for a granny flat interest
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The types of assets that can be exchanged for a granny flat interest include:
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Ownership of your home
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Some of your other assets (money, for example)
Conditions required to establish a granny flat interest
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Right to lifetime occupancy in a residential property
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Payment has been made to obtain the right of occupancy
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The granny flat residents do not own the property in which they reside
How are granny flat properties achieved?
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Transfer of the title of a property to another person
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Providing funds to build accommodation on another person’s property
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Purchasing a property but registering it in another person’s name
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Paying a ‘reasonable’ amount of money to a relative
Centrelink assessment of granny flat: the interest/s
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Centrelink imposes a “reasonable amount” on the value of the asset transferred. If Centrelink considers you transferred more than the value of the residence right they may determine you have deprived yourself of an asset and this may affect the amount of any pension to which you may otherwise be entitled.
Centrelink needs to be informed of what you transferred to the homeowner in exchange for a granny flat interest. Centrelink will assess whether the amount was reasonable to determine whether you are a homeowner or a non-homeowner and whether you have any entitlements to Rent Assistance
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The affectations on your Will
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Parties to a granny flat agreement need to be aware that once the money is given to children 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.
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On the death of a parent, property or money handed over to children by way of a granny flat agreement will not be distributed in accordance with their Will. It is good practice to make sure the Wills and Enduring Powers of Attorney of parties to granny flat agreements are adjusted to reflect the granny flat agreement. This ensures all family members are protected and informed.
Assets which were thought to be part of an estate but were surrendered by way of a granny flat agreement can cause friction with other relatives who may usually be expected to benefit under a will if they are kept uninformed.
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Do you need to have a lawyer draft your Granny Flat Agreement?
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Centrelink recommends that there is a properly drafted legal agreement drawn up to give evidence of the granny flat interest. The rules and regulations surrounding granny flat agreements are dynamic, constantly changing, and the agreements themselves are subject to the law of contract and the rules of Equity.
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To ensure the arrangement complies with the relevant rules, regulations and laws requires the drafting skills of a trained lawyer and must be constructed to reflect the requirements of the jurisdiction in which the granny flat agreement is to apply.
Every situation is unique and copying and using a granny flat agreement found on the internet is a short cut to disaster that will only become apparent when there is a dispute or there is a legal challenge.
It is vitally important that the parties are very clear about the terms under which they enter into any arrangement because no matter how close families seem, many families can have an unforeseen falling and the parents want their money to be paid back. A well drafted granny flat agreement will have provisions for dispute resolution and what happens should things turn sour.