Granny Flat Agreements

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” (the ‘granny flat interest’). 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. The requirements are quite flexible and you do not actually have to build a separate granny flat or a separate residence. As long as there is a designated room or area that allows for the parent’s exclusive occupancy and there is an agreement to support the arrangement, Centrelink will usually approve the arrangement.

What assets can you transfer in exchange for a granny flat interest?

You can transfer any assets to the home owner in exchange for the granny flat interest, including:-

  • ownership of your home
  • some of your other assets (money for example).

How does Centrelink assess your granny flat interest?

Centrelink will look at the value of the asset transferred to see if you paid a ‘reasonable amount’. If Centrelink consider you have transferred more than the value of the granny flat right they will determine you have deprived yourself of an asset. This could affect the amount of pension you are paid. You need to advise Centrelink what you transferred to the home owner in exchange for the granny flat interest. Centrelink needs to know this so they can:-

  • see if you paid too much, and
  • assess whether you are a homeowner or a non-homeowner, thus determining which assets test threshold applies, and whether you have any entitlements to Rent Assistance.

Why is an Agreement important?

Centrelink recommend that you have a properly drafted legal agreement drawn up to give evidence of the granny flat interest. To ensure the agreement falls under the granny flat rules the document should, at the very least, confirm you have security of tenure in the property and state whether you are liable for any upkeep of the property or payment of rent.  Other factors that should also be considered and included in the agreement include:-

  • Who does what for whom (eg cooking, cleaning, washing etc)?
  • Who pays for what (electricity, phone etc)?
  • How much privacy will you have within the home?
  • How much independence will you have to lead your own life versus how tied down will you be by the family’s timetable?
  • How much time do you want to spend with grandchildren, and do you want to be involved in childcare?
  • What happens if your health deteriorates and your care needs change (eg you need to be placed in a nursing home or similar care facility)?

Whilst the granny flat exemption allowed by Centrelink is an excellent idea to provide solutions for elderly parents looking for a stable home and family support in their retirement, it is important that the parties are very clear about the terms under which they enter into this arrangement. It is very important to enter into a proper agreement because no matter how close families are, it is amazing how many families have a falling out in this situation and the parent wants their money to be paid back. There needs to be provision for what happens if things turn sour or the parent needing money for a bond to go into an aged care facility.

Impact on Wills

The parties also need to be aware that once the money is given to the child 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. 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.

Click here for more information on Wills For any enquiries regarding Attwood Marshall’s Will and Estate Planning Department, please contact the Department Manager Donna Tolley, on direct line (07) 5506 8241 or by email on [email protected]. Attwood Marshall Lawyers Northern NSW & Gold Coast, Queensland Gold Coast Estate Planning, Estate Plan, Will Planning