BEWARE THE GRANNY FLAT TRAP

Some parents who don’t want to go to a retirement home move in with their adult children or have them move in with them. They come to a financial arrangement, compensating their adult kids for moving in and looking after them. These informal arrangements can be a disaster if the relationship breaks down.

But you can make a more formal granny flat arrangement that ensures the older person lives in the property under a life tenancy interest and still receives the age pension. There is a Centrelink exemption that allows a parent to transfer or sell part or all of their home, or pay money, to their children for a lifetime right to use the granny flat.

But these arrangements can be fraught, warns lawyer Katie Binstock, who has provided advice on many granny flat arrangements. Aged care adviser Luisa Capezio describes them as messy. All parties need to do their homework.

Both Binstock and Capezio stress that a lawyer who understands the risks should draw up the agreement. “There are so many things that can go wrong,” says Capezio. First, the agreement has to stick to the Centrelink rules so that the aged person still receives a pension. Often well-intentioned adult children find that living with an ageing parent can be a burden, she says.

Parents need to think carefully about signing over their interest in the home, says Binstock. “You are going from having an interest in your property where you have control and hold all the cards,” she explains. “The problem with selling up and putting money with the family or transferring it to the family is that you don’t hold any cards. You don’t cover what happens when there are changes.”

Common problems that can derail a granny flat agreement and land the parent in trouble include an adult child’s separation from their partner. Or the parent needs money to cover aged care costs but they have handed it over to their adult children. If the parent does get dementia, it is hard for both the parent and the child to stay at home and the parent could be better off in aged care.

Binstock says she has seen adult children take wonderful care of their parents, often putting their work life on hold or cutting back their hours. But these adult children can have to confront siblings who believe they have taken advantage of their parents. She has to deal with contested estates and disputed powers of attorney.

She recommends that adult children who care for their parents keep records or a diary note of what they spend their parent’s money on and what their parent requests, in case there is a challenge by other siblings.

She also recommends parents think carefully about who they appoint as power of attorney. “Appoint people who you can trust. Think of the relationships between family members. Consider who is financially stable and who is likely to take the money. Where are the problems likely to come from? Binstock recommends that parents outline what gifts or remuneration they want their children and grandchildren to have from their estate while they are alive.

By adding a clause in the power of attorney document, this can avoid family disputes.