It is common for elderly parents to move into their child’s home in order for their child to take care of them. Some may even say it is the circle of life, we are taken care of by our parents as children and then children take care of their parents when they become elders. However, there are a number of unthinkable events that could occur which will impact a parent’s ability to live out their final chapter comfortably. What if the parent and child relationship breaks down? Is it possible that by moving into a child’s home that the parent’s Centrelink pensions are impacted? Having a properly drafted Granny Flat Agreement will alleviate any concerns of relationship breakdown or pension implications.
What is a Granny Flat Agreement?
A Granny Flat Agreement is an agreement between parent/s and their child. The child provides the parent with accommodation in the child’s home in exchange for the parent providing some financial incentive for allowing the parent to live in the child’s home. Common financial incentives that parent’s provide to their child in order to establish a Granny Flat interest include, but are not limited to:
- a parent transferring their registered ownership in the property to the child, where the parent and child both live in the property;
- the parent provides monetary funds to building an extension of the child’s home or separate accommodation on the child’s land, which the parent will live in;
- both the parent and child purchase a property which will be registered in the child’s name alone, where both parent and child live in the property; and
- the parent provides one lump sum and/or weekly rental payments to the child, in order for both parent and child to occupy the child’s home.
Granny Flat Agreements can provide a great benefit to a parent. It is an instrument that may allow them to utilise Centrelink’s Rent Assistance pension. If drafted correctly, Granny Flat Agreements will also provide contingency plans for any unforeseen events such as a child’s death or relationship breakdown. Having these contingency plans in place inside the Granny Flat Agreement will avoid any concerns about where the parent will live and should avoid any homelessness concerns.
Conditions For Establishing a valid Granny Flat Agreement
The benefit is that Centrelink allows for great flexibility in a Granny Flat Agreement. There is no set template Centrelink requires a parent and child to complete, the agreement just needs to meet 3 requirements:
- the parent must have the right to occupy the property for the rest of their life;
- the parent has made some type of payment to the child to acquire the right to a life occupancy; and
- the parent does not own the property they reside in (they must simply be tenants).
One of the greatest flexibilities of Granny Flat Agreements is where the parent lives in the child’s property. A parent may live in a separate constructed residence (ie. in the child’s backyard) or it can even include a parent living in a specific room in the property. All that is required is that the parent has the right to exclusive occupancy of whatever space is provided in the child’s home.
Another benefit to the flexibility of Granny Flat Agreements is that the payment made to the child does not have to be one lump up-front monetary sum. As outlined above, the payment may be the parent transferring their registered ownership in a property to their child, that will be considered a payment to the child to acquire the right of life occupancy. Payment for the Granny Flat Agreement can also be established so that the parent makes recurring rent payments to the child, rather than an upfront payment when the parent moves into the property.
What should a Granny Flat Agreement include?
It is obvious that a valid Granny Flat Agreement must include a provision that allows the parent to live in the property for the rest of their life. The Agreement must also include a provision for how the parent will pay for the tenancy right. A good Granny Flat Agreement will look into other familial factors and set up contingency plans for changes in circumstances, in order to protect the parent from ending up homeless. Therefore, when drafting Granny Flat Agreements, the following factors should be considered and answered in the Agreement itself:
- who is expected to take on which household responsibilities (ie. will the parent cook dinner while the children will take care of laundry);
- who will pay for what services (ie. rates, water, electricity and gas);
- will parents be expected to assist with maintaining and upkeeping the property;
- are parents and the child allowed any special privacy in their exclusive use areas;
- will the parent be entitled to spend time with their grandchildren and will the parents be expected to provide some sort of childcare for the grandchildren;
- is the child expected to provide their parent with some sort of personal and support care;
- what will happen in the event the parents or child’s health deteriorates (ie. will the parent be placed in a nursing home if their health deteriorates to a certain level);
- will the Granny Flat Agreement have any impact on any of the children’s inheritance (especially if the parent is living with 1 child, but the parent has other children alive who the parent does not live with);
- what will happen in the event the property is sold; and
- what compensation will be provided to both parent and child if the Agreement is terminated for any reason.
Answering these questions in the Agreement should avoid any disputes and maintain expectations of both the parent and child.
External Factors to consider – Centrelink Entitlements and Estate Planning
The purpose of a Granny Flat Agreement is to allow parents to take advantage of Centrelink’s pension entitlements. However, careful consideration must be given as to how much of a financial incentive the parents are providing to their child. Centrelink will look at the amount of financial incentive being given and whether the value of the parent’s contribution is reasonable. If it is not reasonable then the parent’s pension entitlements may be impacted. Therefore, families should contact Centrelink and determine whether the proposed amount the parent/s will provide to the child under a Granny Flat Agreement is reasonable, so the parent can still claim the pension entitlements.
Another factor to consider is the family’s estate planning. Both parents and children need to be aware that by the parent providing money under the granny flat agreement, that money no longer forms part of the estate. Therefore, if the parent wants to alter a child’s inheritance to accommodate for the granny flat, the parent must update their Will accordingly.
If you have any questions or require assistance with a Granny Flat Agreement or Estate Planning matter in Queensland, then please contact the property team at NB Property Law for more information.
Kayleigh Swift, Associate
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis, Lawyer
Chloe Skubis is a Lawyer in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.