Moving back in with the Kids The Pros and Cons of Granny Flat Agreements It has been “the new big issue” for quite some time now – the aging population, retirement living, aged care, and so on and so forth. And, of course, it’s true… there are more and more people entering that stage of life in which independent living can become difficult, if not impossible. However, for many, there is a reluctance to enter the world of the Aged Care Facility. A resistance to what may appear to be a complete relinquishment of control, a loss of “life as we know it”, and possibly the fear that, once shuffled off into that lovely establishment, no-one will visit, and we will lose contact with those loved ones who just don’t have the time to pop by. Enter the “Granny Flat Arrangement”. Mum, or Dad, or both, facing the reality that they can no longer live alone, and desperate to avoid the bleak abyss of the Aged Care Institution, find relief in a well- intentioned offer by a loving child to come & live with them. Frequently, this involves the sale of the family home by the aging parents, and the contribution of some or all of the sale proceeds to either the purchase of a new residence or the addition or renovation of a “granny flat” unit to better accommodate everyone. Win-win… everyone’s happy? For a while, but there are potential problems and issues that need to be navigated with such an arrangement. Granny Flat Agreements have been around for some while and arose out of amendments to the Social Security Act which provided an exemption under the gifting rules for lump sum payments made by a parent to a child in substitution for a right of occupation in that child’s home or another residence. Granny flat arrangements can be a convenient means of providing a solution to the cost for an elderly parent to move into an aged care facility particularly where a child is able to provide care and support for the parent at home, perhaps with a home care package from a local council for district nursing and other home help services. Granny Flat Agreements also provide a viable alternative to a reverse mortgage if the parent(s) is “asset rich but income poor” as the parent’s home can be sold, and cash “donated” to a child to build or provide a room to an existing property as a “granny flat” with surplus funds available as discretionary income of the parent(s). However, it is important to acknowledge from the outset that appropriate legal documentation needs to be in place, and everyone’s rights and obligations clearly identified. Firstly, this can assist with Centrelink eligibility. Now that the family home is sold, the aging parents may have significant cash assets that were previously exempted from the age pension asset test. If part, or all, of these proceeds are applied for the purpose of purchasing alternate accommodation, including a right to reside in a property owned by a family member, and appropriate documentation is put in place, this can be presented to Centrelink and (subject to reasonable amount tests) exempted as a main residence, even if the title to the property is not in the name of the pensioner. It is also important to think carefully about how the arrangement will operate in practice, in both the short and long term. For example: (a) If the arrangements don’t work out, can the owner of the property, who has received money from the elderly family member on the basis they will be able to live in the house, have the power to evict them? If so, will they need to pay back all or part of the funds? (b) If the parent’s health deteriorates and they need to move into an aged care facility as a result of an ACAT assessment, how would the payment of a refundable accommodation deposit (RAD) or the daily care fees be made? Is the child who receives the granny flat payment from the parent able to meet these costs without having to sell their own home? Many granny flat arrangements operate with a separate dwelling on one title although strictly speaking granny flat arrangement can operate with a separate property on a separate title; (c) If there is more than one child of the parent and the child who is providing the granny flat arrangement receives the bulk of the proceeds of the sale of the parent’s home that was intended to be distributed across all child beneficiaries (on death), how is the parent’s Will to be adjusted to ensure equality in the division of the parent’s wealth across all children? Are there are enough assets to make an adjustment in the parents Will to benefit other children who have not received the proceeds from the sale the house under a granny flat arrangement? Is this arrangement likely to cause tensions within the family unit? (d) What should happen if the son or daughter providing the Granny Flat Agreement separates from his or her spouse? How are the interests of the parent protected in the event of relationship breakdown? (e) What if the son or daughter wants to sell the home, will the parent’s right of occupation transfer to the new residence? Although these types of arrangements generally begin on the basis that everyone expects it to continue until the parent(s) passes away, this is not always the case, and it is critical to clearly articulate all the expectations, rights and obligations of the parties at the outset and to properly document these arrangements to deal with some of the issues described above. Case Update– Family Provision Claims by Adult Children: Brimelow v Alampi [2016] VSC 135 This case is the first decision handed down in relation to a claim by an adult child since the change in legislation regarding the rules for challenging Wills was passed, which has applied for deaths occurring on or after … Continue reading The Estate Planner – June 2016