Setting up a granny flat agreement in Townsville can be a comforting solution to you and your loved ones. However, it does not come without risks or implications. We can help you understand the financial risks involved in entering a granny flat interest and ensure that you are complying with relevant regulations, including Centrelink. Setting up an agreement with distinct terms and options to cover changing situations will help make aged-care easier and provide a clear path for the future.
What is a Granny Flat Agreement?
The term ‘Granny Flat Agreements’ doesn’t necessarily refer to the physical structure purposed for housing elderly persons – instead it can have a much wider meaning from a social security point of view.
The term ‘granny flat right’ can be used in living arrangements where money, assets, or the title to one’s home has been conveyed in exchange for a right to a life-time accommodation in a private residence. In these circumstances, the persons or person acquiring the granny flat right does not legally own the property and, in most cases, it is an informal situation developed to provide support for elderly persons.
The granny flat right only exists during the persons lifetime and is not part of their estate.
Where do problems arise?
Whilst some granny flat agreements include organised care for the parent some include just the provision of accommodation. This can pose a long-term risk when elderly persons, who entered the granny flat agreement when healthy, experience drastic changes to their health in a short time frame.
This can have a huge impact on the emotions, finances, and livelihood of the child, their spouse, children or other siblings and carers who may be impacted. As such, granny flat agreements should be discussed with every family member in the household as well as siblings living outside of the household (to reduce the perception of partiality).
Entering a granny flat agreement can have an impact on your cash flow, estate planning, taxation, and the cost and accessibility of home care packages. Importantly, it may also affect your pension and any other benefits you are receiving. We at Access Legal can help you understand these implications and help you make informed decisions.
Entering into a Legal Agreement
Whilst granny flat agreements often exist as informal agreements, setting up a legal document can help provide a clear path for the future and mitigate the risk of changing circumstances. For example, you may have a falling out with your child, or your child may need to sell their house, leaving you in a tough situation. A legal agreement can help you identify and eliminate possible risks and outline what is expected of each party. By seeking professional legal advice we can also help you understand the stamp duty and capital gains tax implications for all involved. A legal agreement should cover:
- expectations and obligations for each party when circumstances change
- responsibilities for each party in terms of liabilities, upkeep of property or rent
- confirmation of security of tenure
- state how compensation will be managed if the property owner cannot maintain the life interest
- factors and provision of care duties
- payment of utility bills for the property
- how it will progress in the case where you need to be placed in a nursing home or aged-care facility
- levels of privacy and the amount of time you spend with family
How does it affect your Estate Planning?
It is important that when setting up your granny flat right, you ensure your wills and enduring powers of attorney are up to date so that any gains can be equitably distributed among your loved ones after you pass. This is because when the granny flat right is established, the amount used to create it may take up a portion of your estate – however it will only exist during your lifetime. Upon your death, any money within the granny flat interest will not be distributed as per your will.