Moving in with a family member is becoming an increasingly popular option for older persons who are looking for additional care and support, without having to move into residential aged care. These family care scenarios are sometimes referred to a ‘granny flat arrangements’.
Don’t be deceived by the name – granny flat arrangements don’t just describe a type of dwelling (although a self-contained cottage in the backyard does sound nice). A granny flat arrangement refers to a situation where a person chooses to live with their adult child (or another trusted person) and transfers their home, or other financial assets, to that person in return for the promise of ongoing housing and care.
Examples of a granny flat arrangement include:
- A parent transferring ownership of their home to their child, but keeping a lifetime right to live there; or
- A parent paying a lump sum (often from the proceeds of sale of their own home) to build a granny flat or extension or carry out renovations on their child’s property; or
- A parent buying a new property in their child’s name, but with the right or expectation to live there as well.
Family care arrangements can be attractive for a number of reasons, including providing support and companionship, the efficiencies of pooling financial resources and it might delay or avoid the need for residential care. In addition, Centrelink is supportive of granny flat arrangements for social security purposes and (subject to certain conditions) exempts the financial contribution by the older person from the usual Centrelink gifting rules.
However, if not carefully considered and documented ahead of time, the breakdown of a family care arrangement can leave the older person especially vulnerable.
Family care arrangements can breakdown for a variety of reasons including the death, disability or divorce of the child or carer, the older person needing a different level of care than expected, or the parties simply not enjoying living together. Without a formal agreement that sets out the respective entitlements and responsibilities of each of the parent and the carer, the breakdown of a family care arrangement can potentially result in elder abuse, homelessness and/or expensive and uncertain litigation to recover funds.
To date, one of the barriers preventing families from putting their granny flat arrangements in writing has been the tax implications. In particular, the child or recipient of the funds potentially faced a significant capital gains tax liability because, by giving away a right to their parent to live in the property, they would have been deemed to have disposed of an interest in their property in return for the lump sum they received. The risk of onerous tax outcomes has acted as a deterrent to entering into formal written granny flat agreements, with many families instead choosing to have informal arrangements.
In the most recent budget, the Government announced that it would provide a specific capital gains tax exemption for granny flat arrangements and encourage families to enter into formal and legally enforceable family care agreements. This is an important and positive step in removing a barrier to well-considered and documented granny flat arrangements and in promoting and protecting the rights of older persons.
This is also a reform that’s close to our heart – two of our partners, Rebecca Tetlow and Emma Bragg, were instrumental in working with the Board of Taxation, the Age Discrimination Commissioner and other key stakeholders to identify the need for reform and develop strategies to address the issue.
If you’re thinking of moving in with a family member, then get in touch with us so we can help you work through the best way to structure and document the arrangement. Our specialist advisors can be contacted on (02) 6140 3263 or by email to [email protected].