Initial information

We regularly provide initial information to clients on the telephone.

These conversations almost always involve discussion about the following.  These things should be thought about when comtemplating entering into a granny flat agreement.

(Again, we use the term “granny” here for convenience, but these agreements almost always involve parent and child):

• • Pensioners – ask Centrelink:
  • Where the granny is in receipt of a Commonwealth/Centrelink benefit it is always necessary as a first step to ask Centrelink whether the proposed arrangement will have any effect on the pension/s. Solicitors are not qualified to give financial advice, and in our agreements we simply recite that advice has been received from Centrelink and that the pension will not be affected. You can contact Centrelink by using a term like “Centrelink financial information service” in Google. Alternatively, specialist financial advisers can be contacted.
  • Tax implications:
  • For the person providing the accommodation, usually a child, where there is a transfer of property involved (which is very often the case) it is necessary to check with an accountant or a financial adviser whether there will be any capital gains or other taxation issues. It is understood that in mid-2021 the Commonwealth government will be amending taxation legislation so that granny flat agreements are not caught by capital gains tax consequences.
  • Disinheritance:
  • Where there is a transfer of property proposed, if there are other siblings not involved with the agreement will these siblings be disinherited by the proposed arrangement? As these agreements are “family agreements” it is important to discuss the proposal with all family members so that disharmony (or worse) in the future is avoided. (Sometimes disinheritance is intended in relation to wayward or estranged children – see our post – here.)
  • Stamp duty:
  • Full stamp duty is payable on transfers of real estate between parent and child. No exemption applies.
  • Pensioners – Centrelink requirements:
  • When there is a transfer of property as a consequence of a granny flat agreement, when granny is in receipt of a pension Centrelink’s rules require only two things – first, that granny does not have any proprietary interest in the granny flat, and, second, that a right to lifetime interest/accommodation is provided for in the agreement.
  • Non-pensioners:
  • If there is no pension involved, the parties are free to make any arrangement they wish
  • Care:
  • Whilst care is often provided for in these agreements, it is not a Centrelink requirement
  • Pensioners – gifting rules:
  • If the Centrelink rules are complied with, there will be no adverse consequence for the pension/s in relation to what would otherwise contravene gifting (deprivation) rules.
  • Who pays for what?
  • Who is going to pay for what now and in the future – for instance, rates, outgoings (gas, electricity etc,), insurances, maintenance and upkeep, stamp duty/legal costs and (if any) land tax. Is granny going to pay any type of ongoing occupation fee? Can granny afford expenses s/he has to pay?
  • Capacity:
  • Does granny have the necessary capacity to be able to understand this type of agreement? If not does s/he have an attorney under a financial power of attorney, or other legal representative? Does granny understand written English?  Does s/he need an interpreter?
  • Powers of attorney:
  • Is there a power of attorney in place? If the attorney under a financial power of attorney is also a party to the granny flat agreement conflicts of interest could arise in relation to any decision by the attorney about the granny flat agreement.
  • We can only act for one party:
  • Solicitors can act for only one party to an agreement. We almost always act for the granny.  This is an important requirement to ensure the integrity, validity and enforceability of the agreement.
  • Perils of care provisions:
  • If lifetime care is intended to be included in an agreement, think carefully about what that means and whether the provision of care is achievable – “…in my experience, if the family does not confront the vagueness and uncertainties of the care for life promise upfront, the harsh reality is that this failure will then usually lead to divergent expectations bubbling to the surface after the event, which will ultimately be the source of personal bitterness and family implosion.”*  See further information on care – here.
  • What is going to happen if…..
  • Possibly the most important last.  What is going to happen if the child’s marriage breaks up?  Will the granny flat have to be sold? What if the relationship between granny and child breaks down? What if the child has financial problems?  What accommodation, care and financial arrangements are going to be made if these circumstances arise?  All of these possiblel outcomes are usually included in a written granny flat agreement.

* Brian Herd – “The Family Agreement – a Collision Between Love and the Law?” [2002] ALRCRefJI 18; 2002 81 Australian Reform Commission Reform Journal 23