A Granny Flat is usually a self-contained unit within or attached to another residence, and can be entered into as a private arrangement so the resident can be close to family who can give the required help. In practice it requires the resident to provide an amount of money, or asset, in exchange for life tenure and continued care and support.

A granny flat is a special residence and the granny flat interest recognises these family arrangements, reducing the likelihood that the exchange takes the form of a gift. This interest requires payment for life interest or right to accommodation for life in a private residence which will then be the principals’ home.  The value of an interest is generally the same as the amount paid for the interest; however it can be valued with the application of the reasonableness test.

Pensioners can dispose of more than $10,000 in a year if they are going to be given a life tenancy without any impact on the rate of pension. These agreements allow seniors to avoid lifestyle change, even after independent living is difficult. They can reduce the costs of professional care, preserving assets and providing security for the family, who will in turn provide companionship and security, as opposed to institutional care.

Private care agreements are not intrinsically a form of exploitation; however there are issues that need to be considered. This includes financial loss were the relationship breaks down, becomes unhappy or abusive. Family caregivers are also at risk when the senior’s health places demands beyond original expectations. While without full consideration there may not be funds to pay a bond at the nursing home.

Many family agreements are vague, informal and undocumented, creating difficulties in determining terms and conditions, as well as enforcing the agreements at law. Thus only after litigation can the senior’s interest be held under constructive trust.

Such arrangements are made on an unplanned basis even though involving a significant amount of money or property and sever consequences. Informality also makes it less likely that the parties would have discussed and made provision for a range of scenarios.

Family Agreements

While trust may be thought to be sufficient, legally binding contracts around a family arrangement is an important safeguard when investing life savings in exchange for care and support. Written agreements help to set the intentions of each party as well as to assist with recollection of the arrangements, which gives rise to contractual obligations.

Conflict can be avoided if parties enter into a clear agreement which contemplates some of the risks and the vagaries of life which bring litigation. The Court has held ‘the best way to take precautions and avoid such outcomes is to carefully consider the risks and the options and then to commit the agreement to writing, preferably with the assistance of a lawyer’.

In making a binding family agreement it is suggested you considers the services expected and their value,  and the conditions you want to impose. For example rather than a vague ‘care for life’ agreement, the condition will be addressed as care ‘over the lifetime of elder, on an as needed basis’.

Alternative to full transfer

It can also be suggested that a safer arrangement would involve paying the family member on a monthly basis, as opposed to making the lump sum transfer.  This scheme can give you greater control than an inter vivos transfer of title and equity in one sum, while affording the caregiver greater control and security than at-will contracts or testamentary promises.

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Granny Flat agreements need to be adequately considered to avoid a situation which leads to a serious dispute. There are risks by not entering into a formal agreement to protect your interest in the event the arrangement breaks down and therefore a binding family agreement, based on your individual needs, is recommended.

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