Securing suitable and affordable accommodation is a major concern for Australia’s growing ageing population. People’s housing needs will invariably change as they age. Therefore, people contemplating their housing situation are asking; what type of accommodation do I want to live in? Who will care for me as I age? What type of housing can I afford?
In response, many older Australians are opting to enter ‘granny flat agreements’ with their families. While these arrangements appear to be a win-win for both parties, older Australians are at risk of losing much of their money or property if circumstances change, or relations with their relative’s sour.
An asset for care, family accommodation or granny flat agreement is an arrangement whereby an elderly parent transfers money or property to a family member (most commonly an adult child) in exchange for accommodation and care. Often a parent will sell their existing property and use the proceeds to fund their new accommodation with their adult child. However, the arrangement can include:
These agreements are becoming increasingly common and seen as an attractive alternative to aged care, particularly as the Aged Care Royal Commission continues to spotlight serious and alarming shortfalls in the quality of institutional care. The arrangement is advantageous as it enables elderly parents to be cared for within the family environment and provides a method of preserving family assets rather than funds being dissipated in aged care or to external care providers.
Adult children can obtain benefits through the injection of funds which can assist with mortgage payments, or enhanced value to their property by way of extensions or renovations, while the living arrangements enable older parents to maintain familial and social networks, which are critical to people as they age. Essentially, adult children can access an ‘early inheritance’ and grandparents could play an active role in the lives of their grandchildren.
A granny flat arrangement will not affect a person’s eligibility for the pension, as these arrangements are exempt from the gifting restrictions. They can, however, have tax consequences for the adult child, which is another reason to seek advice before entering into such arrangements.
These arrangements are problematic because they often fail prematurely. The reasons for failure are many and varied. Sometimes, the relationship breaks down and the parties can no longer live together. The parent may be told to leave, or choose to leave. In other instances, the elderly parent may over time develop physical or cognitive impairment which requires a level of care their child is unable or unwilling to provide. Or, the adult child may become incapacitated themselves, divorce, or even predecease their parent. Any number of events may happen, resulting in the parent not receiving the care and housing they expected under the arrangement.
In this situation, the parent is left in a precarious legal situation. Unless the adult child is willing and able to refund some or all of the money given pursuant to the arrangement for accommodation and care, the older party may find themselves having to find alternative accommodation. In some instances, elderly parents have been rendered homeless and having to rely on the generosity of friends or other family members.
Unless the adult child is forthcoming with paying back the money, the legal position of the parent to demand repayment is tenuous. The parent is rarely included on the property title as a registered owner. Adjusting ownership will attract stamp duty, and in any case, if the house is mortgaged, many mortgagee’s will not agree to a dilution of their equity should they have to exercise a power of sale. As the adult child holds legal title to the property, the older party must look to the complex area of equitable doctrines and remedies in order to gain relief.
The existing law places a heavy onus on the older party to establish a claim and recover either compensation or claim an interest in the property. Adult children will commonly claim the transfer of money was a gift. In most cases, the emotional and financial expense of bringing a claim is too much to contemplate.
An older person must either have sufficient wealth to bring an action (the costs can be in the vicinity of $100,000) or be eligible for legal aid. Some may be lucky enough to benefit from pro bono legal representation. Suing your own family members is not only expensive but time-consuming and emotionally fraught which is why few older Australians are willing to put themselves through this.
In some instances, parties will have negotiated an agreement prior to entering the arrangement, setting out the rights and responsibilities of both the parent and adult child. However, having an agreement in writing, or consulting a solicitor beforehand is rare.
Mostly, agreements are informal and imprecise as to their terms, despite involving the transfer of major assets. This can be explained because they often occur following a crisis, for instance, the death of a spouse, a fall, the diagnosis of an illness, or mortgage stress on the part of the adult child.
Under these conditions, little thought is given to events that may occur in the future to jeopardise the arrangement. Additionally, many families assume that as the arrangements are made with their nearest and dearest, formalising the agreement is unnecessary.
If you are convinced an asset for care or granny flat arrangement is for you, there are ways to protect yourself should the arrangement fail, but none of them are bulletproof. First, have an open and frank conversation with the person you are entering the arrangement with, making clear your intentions and expectations. Give consideration to what you want to occur if you need to enter aged care, you wish to leave or something unexpected happens.
It is of course imperative you seek independent legal advice prior to making any transfer. A solicitor familiar with assets for care arrangements will be able to assist you in drafting an agreement tailored to your circumstances which will help secure your legal position should something untoward happen.
They should also address matters such as your intentions concerning your property and whether you want to make provision for any other children you may have, or whether you are entering this agreement in the absence of any undue influence. Any costs incurred will be minimal compared to the potential loss should the arrangement fail.
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