Many people find that as they get older, living alone in their
home is no longer feasible or may not be desirable. There are many
reasons why older people decide to live with their children, such
as wanting companionship, support or the peace of mind that someone
is around to help. This may also be a better financial option for
some than buying a place in a community village or a retirement
Granny Flat Interest
A granny flat interest is established when you exchange assets
or money for the right to reside is someone else's property for
as long as you live. For example, 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").
Granny Flats and Social Security Entitlements
Under normal circumstances Centrelink would deem the transferred
property or funds as a gift and this would have an adverse impact
on the parent's pension entitlements. However, the granny flat
rules allow for any property transferred or money paid to the
parent's children to be exempt from Centrelink's usual
deeming rules provided the person has paid a "reasonable
amount" for the granny flat interest.
How does Centrelink assess your Granny Flat Interest?
Centrelink will look at the value of the asset transferred to
see if a person has paid a "reasonable amount". There is
a particular formula applied by Centrelink in determining what is
reasonable based on a number of factors including the age of the
pensioner. If Centrelink considers a person has paid or transferred
more than the value of the granny flat right, Centrelink will
determine that the person has deprived himself or herself of an
asset. This will then more than likely affect the person's
Do you need to build a separate Granny Flat?
Centrelink does not require you to build a separate granny flat
or a separate residence (although this is often done). 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. It
may even be that a person sells their home and buys a new home in
their child's name for them and the family to share.
Are there risks?
Granny flat arrangements often work out well. However problems
can arise if circumstances change or relationships sour. It may be
that the parent needs money to cover the bond for entry into aged
It is important to have a properly drafted agreement, not only
to evidence the granny flat interest but also so that family
members are clear about the terms under which they enter into this
arrangement. The agreement could cover things such as who does what
for the other (eg. cooking and cleaning), who pays what bills but
also what will happen if the parent's health deteriorates and
their care needs change (eg. they need to be placed in a nursing
home or other care facility).
The Impact on Wills and Estate Planning
The parties to an agreement need to be aware that once the money
or assets are transferred to a child in exchange for a granny flat
interest, that asset will no longer form part of the parent's
estate. It is therefore important for people to address their
estate plan when entering into granny flat arrangements. Proper
planning is the best way of achieving your goals and avoiding
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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If you are doing a Will, or you are the executor of a deceased estate, consider what taxes and duties could be payable.
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