Granny flat arrangement ending
Granny flat arrangements
At Centrelink, a granny flat arrangement provides for a senior person, the ‘granny flat resident’, to live for the remainder of her life in accommodation provided by the ‘granny flat host’.
The granny flat resident usually contributes a lump sum ‘ingoing contribution’ towards the capital cost of providing her accommodation.
The granny flat resident might pay regular fortnightly payments to her granny flat host as rent and/or contributions for property expenses such as Municipal Rates and insurance. The granny flat and her host also agree on her contribution to utility bills and food costs if she has meals with her host family.
Granny flat arrangement endings
Successful granny flat arrangement endings are when the granny stays with her family until her life’s end.
But sometimes the arrangement does not work and the granny flat resident must move on whilst still breathing.
The reason for a granny flat arrangement ending could be that the hosts must move interstate for work or the granny needs a greater level of nursing care than the host family could provide, or the granny flat hosts and the granny flat resident just cannot get along together or…
In a good granny flat arrangement endings would have been considered at the start before the granny flat resident moved in with the host family. A well drafted granny flat agreement would detail the financial terms for each potential cause of the granny flat arrangement ending.
The granny flat resident could also update her Will to take account of the granny flat agreement and the payment of her ingoing contribution.
Granny flat arrangement ending when the host family is moving on
When the granny flat hosts are moving on then an early granny flat agreement ending might occur.
A nice early granny flat agreement ending might be that the home is sold and the granny flat ingoing contribution is refunded. The former granny flat resident then has some funds to buy into a retirement village lifestyle community and re-establish her life.
But if the host family were in debt, the home sale proceeds might not be enough to allow for the ingoing contribution to be returned. So the granny could find herself with neither assets nor a home.
Centrelink after a granny flat arrangement ending
When the former granny flat resident returns to Centrelink, the granny flat ingoing contribution would be counted as a gift to the former granny flat hosts. So when Centrelink review the Age Pension of the former granny flat resident the excess gifting rules would apply.
The excess gifting rules would have the ‘gifting’ of the ingoing granny flat contribution expiring five years after it was paid to the granny flat hosts. If the granny flat arrangement had lasted for the full five years then no part of the ingoing contribution would count as an asset of the former granny flat resident. Her Age Pension would be assessed on the Assets and Income that she did have after the granny flat agreement ending.
If the granny flat agreement ends within five years of the ingoing contribution being paid then Centrelink would count the ingoing contribution as a gift and the ‘excess gifting’ rules would apply. Thus the former granny flat resident would be assessed as having a large financial asset, the excess gift, for the remainder of the five years from when she handed over the granny flat ingoing contribution. Consequently her Age Pension might be substantially reduced on account of the ‘excess gift’.
Thus financial challenges await the former granny flat resident whose granny flat agreement ending was early but without a cash refund.
Granny flat arrangement ending when the granny flat resident needs residential aged care
When the granny flat resident needs more nursing care and/or personal support, than could be provided at home, the granny flat resident might need to enter residential aged care. For the purposes of determining the Age Pension entitlement and means tested aged care fees for the former granny flat resident, Centrelink count the granny flat ingoing contribution like a gift to the granny flat host.
If the granny flat arrangement had lasted for at least five years then the excess gifting period would have expired and no part of the ingoing contribution is counted as an Asset of the exiting granny flat resident. The aged care means tested amount would be based on the assets and income of the former granny flat resident on her entry to residential aged care.
However, if the granny flat agreement ends within five years of the ingoing contribution being paid then Centrelink would count the ingoing contribution as a gift and the ‘excess gifting’ rules would apply. A former granny flat resident who needs residential aged care within the five year period would have most of her granny flat ingoing contribution counted as a Financial Asset for the purposes of calculating her means tested aged care amount.
The family could be financially challenged if the only asset of the aged care entrant was her ingoing contribution to her granny flat arrangement. The excess gifting rules could result in little if any Age Pension but high costs of residential aged care until the former granny flat resident reaches the end of the five year excess gift period.
Hint: Consult Christine at Financial Care Services about aged care costs if you are thinking of a granny flat arrangement for a granny who is becoming frail.
Christine understands the means testing for aged care fees and Age Pensions. Call Financial Care Services on 03 9808 0338 to make an appointment for personal financial advice.
Document granny flat arrangement endings
A well drafted granny flat agreement would include the financial terms of both entry and the eventual exiting of the granny flat arrangement. The potential causes of a granny flat arrangement ending could be set out in the granny flat agreement.
If the terms of a granny flat arrangement were no longer workable then a family could agree to change the terms in their granny flat agreement. Problems arise when the implied terms of a granny flat deal prove unworkable but there was no documented granny flat agreement at the beginning.
Hint: Document all of the terms of your granny flat agreement before entering a granny flat arrangement and well before paying the ingoing contribution.
Christine at Financial Care Services could help you work through the financial aspects and the Centrelink implications of your granny flat proposal.
Together we could think about how much the granny flat resident would contribute at the outset and regularly during the granny flat period, in cash, babysitting or gardening or…… Once the beginning and the middle of the granny flat arrangement are understood then we could cover the different forms of granny flat arrangement ending.
You could then have a lawyer draft your granny flat agreement to reduce the risk of lawsuits when the granny flat arrangement ending is unhappy.
Call Christine at Financial Care Services on 03 9808 0338 to make an appointment for personal financial advice regarding your granny flat arrangement.
Contact Financial Care Services to start your granny flat discussions.
To make an appointment for confidential, independent and professional advice about pensions, lifestyle or financial issues please contact Christine at Financial Care Services 03 9808 0338.
The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before borrowing or investing any money, entering a granny flat arrangement or moving in to any retirement village, lifestyle community or aged care facility.
Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations.
All eligibility for Commonwealth benefits will be determined by Centrelink or DVA, based on your personal position as documented and the legislation and Regulations in force at that time.
© 2015 Financial Care Services Pty Ltd. All rights reserved.
To make an appointment for professional advice, call Financial Care Services 03 9808 0338