With the cost of property rising, especially in major Australian cities like Sydney, many families are considering having their elderly parents and/or grandparents live with them or taking over the cost of their current homes or building a new living unit connected to, or on, their current property. While this is an excellent idea for many reasons, including being safer and healthier for elderly relatives, it must be done in a legally proper manner to fall within the realm of being a genuine granny flat residence.
How Many Types of Granny Flat Arrangements Are There?
First it is important to know the three (3) types of living arrangements that can create a granny flat situation.
- Buy A Property: The parent or elderly person can buy a property in their child’s name and then secure the right to live in the property for a life estate, which means the elderly person will be allowed to live there for the rest of their life
- Transfer A Property: If the elderly person owns a home that they do not want to leave, they may elect the option of transferring ownership of the home to their child or another trusted person and retain the right to live there for the balance of their life.
- Build A Property: The elderly person may elect to sell the home they currently own and then pay for the remodeling of another person’s home or pay the cost of building a tiny home on the property of the person they would like to live near.
Should These Arrangement Be Formalized in A Writing?
The short answer is yes, these arrangements should be formalized in a writing that indicates that the elderly person will have the right to live in the dwelling for the balance of their lifetime. However, the document should also include the following;
- The type of care the younger person will be providing to the elderly person
- Will the younger person provide transportation for the elderly person to and from medical appointments, shopping trips and grocery runs?
- If the family who is caring for the elderly person is disbanded due to divorce, or a death of a caretaker, or the home is sold, what will be the responsibilities of the family to the elderly person?
- What will happen if the elderly person eventually requires more care than the hosting family can provide?
- In the event the home must be sold due to financial issues, what will happen with the living arrangements for the elderly person?
Homeownership v. Legitimate Granny Flat
For a granny flat to be a legitimate transfer or arrangement, the elderly person cannot still be considered a homeowner. The key to being found a non-homeowner is to not over-pay for the right to the granny flat living arrangement. If you are found to have overpaid for the granny flat, you will be found a homeowner. Therefore, you cannot pay above and beyond the calculated value of the granny flat for the right to live there for the balance of your life.
The Reasonableness Test
The reasonableness test has two factors. The first factor considers the combined annual pension rate. The second factor is the conversion factor based on the elderly person’s age. The pension rate is multiplied by the conversion factor to determine what the value of the life interest or right for life should be. When calculating the rate, it is best to use the age of the younger person as it will yield a larger value for the life interest. This is a complicated calculation which should be done by a professional to ensure it is done correctly.
A granny flat arrangement can be very beneficial for all parties involved. It provides a safe and secure place for an elderly person to live with care given to them by someone they trust. And it can reduce the worry and stress of having an elderly parent that you might not be able to assist daily. In addition to the benefits, it is important to set a granny flat up properly with the assistance of professionals who are familiar with all of the rules and regulations regarding tax and other financial concerns.
In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.