Granny flat independent financial advice

Granny flat independent financial advice

 
by Christine Hopper

A granny flat arrangement is an option for those who promised Mum that they would never put her into an old people’s home. But now that she is frail and confused she cannot stay on her own.

Having Mum come to live with you long term could be a granny flat arrangement. How the granny flat resident contributes to the cost of providing her accommodation is the subject of a granny flat agreement.

Why independent financial advice about a granny flat arrangement

Specialist granny flat independent financial advice before entering a granny flat arrangement could save your family distress and misunderstanding later.

Independent specialist granny flat financial advice helps you understand the financial implications of your proposed granny flat arrangement.

Remember that DVA and Centrelink have special rules about granny flat interests. The Commonwealth regulated residential aged care means tests also administered by Centrelink include some granny flat interests as assets.

You could then refine the terms of your granny flat agreement to clearly cover the possibilities of changed circumstances.

An early consultation with an independent specialist financial adviser reduces the risk of unexpected challenges when the granny flat resident needs to move on.

Call Christine  Financial Care Services on 03 9808 0338 to arrange an a consultation appointment before you write your granny flat agreement.

What could be granny flat arrangement

A granny flat arrangement is an option for those who promised Mum that they would never put her into an old people’s home. But now that she is frail and confused she cannot stay on her own.

Having Mum come to live with you long term could be a granny flat arrangement. How the granny flat resident contributes to the cost of providing her accommodation is the subject of a granny flat agreement.

When the granny flat resident owns a now vacant home

Peter is bewildered by housekeeping after his wife’s death and moves in with his daughter Pam, temporarily. Peter gives most of his Age Pension to Pam to cover the costs of his meals with her family.
In practice, Peter has entered a granny flat arrangement with Pam and her partner. The terms of this granny flat arrangement are only that Peter is volunteering some ‘board’ money. Peter does not contribute to the utility bills as he is still paying for these at his own home.
The family situation has the potential for tension as Pam and her partner pay all the housing costs. Also, the house is quite crowded with Pam, her partner and their children plus Peter. Peter, Pam and her partner start thinking about how they could live harmoniously for the long term as an extended family.

The family decide to sell this home and buy a larger place that has a self-contained section for Peter. Independent financial advice from a granny flat specialist is required to ensure good relationships are maintained as financial matters are explored.

The move becomes urgent when the financial adviser discusses the Centrelink implications of the granny flat arrangement. A year after Peter moves out of his home Centrelink will start counting the house as an ‘investment property’ and treat Peter as a ‘non-homeowner’ for Age Pension means testing.  Peter’s Age Pension would be reduced significantly on account of the value of his former home.

When the granny flat resident sells her former home and pays a lump sum for her granny flat interest

Peter, Pam and her partner agree that they would sell both homes and buy one large home that includes a self-contained ‘granny flat’ for Peter.
Peter also sells his home and makes a substantial contribution to the cost of the new home for Pam and her family.

Peter plans to contribute $300,000 to the cost of the new home. Peter’s name could not be on the Title if he is purchasing a ‘granny flat interest’. The other option is for Peter to be a joint owner with Pam and her partner. Peter would then be a ‘homeowner’ at Centrelink.

Pam and her partner plus Peter and his other adult children consult Financial Care Services regarding this granny flat arrangement. The independent financial advice from Financial Care Services clarified the impact of Peter’s contribution to the granny flat arrangement and the impact on his Age Pension.

Peter’s children are happy with his contribution to the purchase of Pam’s home on the understanding that Peter will live with her family for many years. Financial Care Services explained how Centrelink could treat his contribution to the granny flat arrangement if Peter needed to enter residential aged care within five years of buying into his granny flat arrangement.

Centrelink adjust Peter’s Age Pension to allow for his status as a granny flat homeowner with some additional money to invest.

If you would like further confidential, independent and professional advice about granny flat interests, Pensions or financial issues please contact Christine at Financial Care Services on 03 9808 0338.

Peter consulted his lawyer about changing his Will to reflect his granny flat contribution to the cost of Pam’s home. His lawyer worked with Christine at Financial Care Services to check that the granny flat agreement reflected the ‘deal’ that the family had agreed and satisfied the Centrelink provisions.

Independent aged care financial advice when the granny flat resident needs residential aged care.

Bob had been graciously covering for his wife, Betty’s memory problems. But after Bob died, the family became aware that widowed Betty could not safely live on her own.
Bruce agreed with his siblings that Betty could live with his family and they would care for her.
The family ‘helped’ Betty sell her house a few years ago and gave the proceeds to her son Bruce. Bruce extended his family home to accommodate Betty and his growing family.
Betty’s family were so concerned about Betty’s wellbeing that no one thought about the financial and Centrelink aspects. Betty and Bruce, together with Bruce’s family, had stumbled into an undocumented granny flat agreement.

Three years after Betty paid the $300,000 and moved into Bruce’s home, Betty’s memory has declined further. Now Betty falls so easily that she is unsafe in the house alone; her incontinence is testing everyone’s patience. Betty needs residential aged care.

Confronted with Centrelink forms, Bruce and his sister seek aged care financial advice from Financial Care Services. Christine at Financial Care Services understands the aged care financial system and the Centrelink granny flat rules.

While Betty lived with Bruce, Centrelink treated her as if she used the $300,000 to buy into a new home, the granny flat interest. Betty had not retained enough money from the sale of her former home to be impacted by the Age Pension Asset Test so she did not realise that at Centrelink she had “homeowner” status.

If Betty had remained in the granny flat arrangement, that is, living with Bruce and his family, for five years then the ingoing payment would have been absorbed. But Betty is leaving the granny flat arrangement within five years of her entry.

The challenge for Betty’s family is that once Betty leaves the granny flat arrangement, Centrelink treat that $300,000 she gave to Bruce as a gift.
Centrelink allow for gifts of $10,000 maximum per financial year. Hence the other $290,000 would count as an ‘excess gift’ for means testing purposes from the date Betty leaves the granny flat arrangement until five years after Betty gave the money to Bruce.

Betty is too frail and confused not to be in residential aged care. The family discuss their options with an independent aged care financial adviser at Financial Care Services.
One option is for Bruce to pay Betty’s aged care accommodation costs for the remainder of the five year gifting period, as he had received the $300,000 to provide Betty with housing for the remainder of her life.

Another option is for Betty to use her own money and her, now reduced Age Pension, to finance her aged care. The family are still thinking about what to do if Betty runs out of money before the five years are completed.

Bruce and his partner now realise that they would have been smarter to have paid for independent professional financial advice before they bought a larger home to accommodate their family plus Betty.

If you would like further confidential, independent and professional advice about granny flat arrangements, Pensions or financial issues please contact Christine on 03 9808 0338 to book a consultation.

When the granny flat resident has never owned a home.

Many single retirees living in rental accommodation find that their income does not stretch beyond the most basic essentials. Elderly singles might then withdraw from community life rather than be embarrassed by their constrained circumstances.
Social withdrawal might then impact mental health and general wellbeing. Thus offering a granny flat arrangement could renew the overall health and social inclusion of a family elder.

Some government assistance might be available to have a self-contained accommodation unit or ‘granny flat’ parked on the host’s property. The host might need to pay for electricity, water and sewerage connections to the transportable granny flat. However, many empty nester families have spare bedrooms available for granny flat accommodation.

Consider Joan, after a serious fall Joan ended her lease on a home unit to stay long term with Jenny. Joan had been receiving Rent Assistance as an Age Pensioner with no significant assets.

Joan and Jenny get independent financial advice from Financial Care Services to write a granny flat agreement. The granny flat agreement shows that Joan is contributing to the household running costs and paying some ‘rent’ for the use of an en-suited bedroom in Jenny’s house. Joan could ask Centrelink to continue her Rent Assistance in addition to her Age Pension, because she is paying for accommodation.

Joan and Jenny appreciated the advice of Financial Care Services about the granny flat agreement. The other members of the family were happy for Jenny to care for Joan. That Joan was contributing to the costs of her board in Jenny’s home did not bother Jenny’s siblings.

Professional advice about the Centrelink and Age Pension aspects of the granny flat agreement helped Joan and Jenny prepare the paperwork to show to Centrelink.
You can book a consultation with  Financial Care Services, make an enquiry now or call Christine on 03 9808 0338.

Independent financial advice for granny flat agreements

Independent financial advice before entering a granny flat arrangement could assist with long term family dynamics. Your granny flat agreement could cover the regular household expenses such as sharing the electricity bills and municipal council rates.

Independent financial advice before entering a granny flat arrangement could start the difficult discussions of what would happen if the granny flat resident needed to move on.
The reasons for moving on the granny flat resident could include her declining health and/or dementia requiring her to move into aged care.
Other reasons for terminating the granny flat arrangement are that the host is moving on, maybe to another city for work or to another relationship.

Not every granny flat arrangement continues graciously for decades. Your granny flat agreement could provide for changes in the granny flat arrangements. Independent financial advice before starting a granny flat arrangement could generate a granny flat agreement that graciously lasts the lifetime of the granny.

Hint  Independent financial advice before you buy into a granny flat arrangement could avoid later problems. An early consultation with Financial Care Services could clarify the financial arrangements and Centrelink, or DVA, implications before any property transactions get underway.

Seek legal advice and document the granny flat agreement even when all family members say that they are ‘happy’.

Christine at Financial Care Services is available to assist you discuss the financial and Centrelink aspects of your “what if’s” of a granny flat arrangement.

Financial Care Services is licensed to offer investment strategy advice and to assist you to invest. Financial Care Services charges fees based on the work involved in advising you and arranging your investments. Financial Care Services does not base fees on the value of your assets nor do we accept any commissions or payments from other service providers.

If you would like further confidential, independent and professional advice about Centrelink, lifestyle or financial issues please contact Christine Hopper to make an appointment 03 9808 0338.

Disclaimer: 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 investing any money 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. © 2014 Financial Care Services Pty Ltd. All rights reserved.