Over time, elderly individuals may find that living alone in their family home is no longer suitable for them. They may wish to be closer to their adult children for comfort and support. There are many other reasons why elderly people chose to live with their children.
If you are in this situation as either child or parent, you may find it necessary to enter into an intergenerational family accommodation agreements (IFAAs). However, there are different ways of setting up an IFAA, some of which will be discussed below.
Types of Tenancy:
Tenants in common proportionate to contributions
The most beneficial way of setting up an IFAA is as tenants in common in proportion to the financial contributions made by the parent and child respectively. In the unfortunate event there is a relationship breakdown, an application can be made to the Supreme Court for the appointment of trustees for the sale of the property. This will then enable the parent to recover their contribution. Owner occupation will also allow the individual to take advantage of the usual principal residence exemptions for pension and capital gains tax purposes.
A potential downside to this type of arrangement is that lenders are less likely to advance funds when an income-poor elderly person is on the property’s title. The parties to the IFAA will also be required to incur legal costs and duty on their respective shares.
Joint Tenancy
Joint tenancy is very similar to tenants in common, however there is one important difference. On the death of the first tenant (which more than likely will be the parent), the whole property will pass by survivorship to the surviving tenant. This is likely to leave any other siblings disappointed. This option may be more appropriate where the parents only have one child.
Lease and Loan
Long term lease and loan arrangements are commonly used by retirement villages, however they can also work well in private homes. A registered lease for the life of the parent can give excellent security of tenure and also provide for the enforceable repayment of their contribution. A further advantage is that this type of arrangement is not subject to stamp duty, which will greatly reduce the costs of implementation.
Under this approach is it advisable that the parent:
– Protect their loan by a registered mortgage or at the very least by caveat; and
– Ensure that there is a clause in the IFAA preventing the child from offering the house as security for further borrowing
A disadvantage for elderly pensioners, is that Centrelink will characterise the amount of the loan as a financial asset that will attract a deemed income.
Equitable Trust
What happens if there is a sudden change in the basis of co-habitation? Such as when a parent needs to move out into a nursing home, a child re-partners or de-partners.
If the parties have not entered into any of the above arrangements, equity will deem the child to be holding the corresponding share on trust for the parent, except where it can be proved that a gift was clearly intended. The presumption that the parent would be gifting to the child (presumption of advancement) is avoided through an IFAA stating that the child’s ownership is subject to an express trust in favour of the parent.
A court may impose a constructive trust where there is a finding that a child’s conduct was unconscionable. An example is where a child sells the property, evicts the parent and fails to account for the parent’s financial contribution to the initial acquisition amount. Alternatively, where a parent is able to prove that the child indicated to them a right of residence for life was being offered in exchange for their financial contribution to the property, the parent could argue proprietary estoppel.
If you require any further information or assistance in relation to granny flat arrangements, please do not hesitate to contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.
