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Granny flat arrangements can tear families apart if not done the right way

Unfortunately, we have seen a number of recent cases where granny flat arrangements between family members have fallen apart and older parents have been left out in the cold with no secure place to live…

The Central Coast continues to see the population of older people grow because they are attracted to the benefits of retirement living on the coast whilst the population of younger families has also grown because they are attracted by affordable housing, a coastal lifestyle and good accessibility to the Sydney metropolitan area.

Increasing housing costs mean many families look to a solution where families can pool their resources and live together. Such arrangements may involve a parent selling their own property and gifting the money to a child with a view to all of them living on the one property bought in the child’s name. The older parent looks forward to living closer to their child and grandchildren with the added benefit of having someone to care for them as they grow older. The child gets a helping hand into the property market.

In one recent case, a father who received a Centrelink pension sold his own property, gifted the proceeds to his son who purchased a house on the coast in the son and son’s wife’s name with the intention that the father would live in a granny flat on the property. There was no written agreement between the father, son and son’s wife setting out the terms and conditions of their agreement.

The son and his wife separated before the granny flat was built leaving the father without a home to live in and no money to show from the sale of his own property. It was likely to be many years before the Family Law property dispute between the son and his wife would be resolved. To add insult to injury, Centrelink assessed the gift to the son as a “deprived asset”.

Centrelink rules provide that a pensioner can gift $10,000 per year or a maximum of $30,000 in any 5 year period. If you gift more than this you are “depriving” yourself of an asset and Centrelink will deem that you still own that asset for the purpose of applying the asset and income tests to your eligibility for a pension.

An exemption from this rule exists for “granny flat” arrangements but in this particular case Centrelink determined that the granny flat exemption did not apply. The granny flat exemption applies if you:-

  • Transfer the title of the home you live in to someone else and keep a lifetime right to live in that home or in another home;
  • Pay the costs to build a granny flat on someone else’s property or the costs to convert someone else’s property to suit your needs and established a lifetime right to live there; or
  • Buy a property in someone else’s name and establish a lifetime right to live there.

The father in the above case was assessed by Centrelink to be deemed to still have the money he gifted to his son over the $30,000 limit and so his pension was reduced accordingly.

Many of these problems could have been avoided if the father, son and son’s wife had seen a Solicitor to set out their rights and obligations in a written agreement such as a Deed of Family Arrangement.

The agreement could then have included provisions for the father to trigger the sale of the property and the return of his money or the purchase of alternative accommodation once the original granny flat property was sold.

It makes sense to always get advice from a Lawyer experienced in these types of property matters to ensure your rights will be properly protected. Call Brazel Moore Lawyers on (02) 4324 7699 to speak to an experienced Lawyer today.

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