Hypotheticals by Manny Wood. Published in the Coffs Coast Advocate on 27 November 2015.
This week’s column looks at the issues that can arise when parents and children enter into granny flat arrangements.
John’s mother Jane, was recently widowed and now wishes to relocate closer to John and his children, who live near the coast.
John and Jane decide to purchase a house that includes a separate living area, kitchen and bathroom for Jane.
Jane sells her home in Sydney and has funds available to make a substantial contribution to the purchase price of the new house. John and Jane consult a conveyancer and the purchase proceeds. They purchase the home as joint tenants and do not think about putting any other arrangements in place.
When Jane dies several years later, her will leaves her whole estate to John and her two other children in equal shares. However, because Jane owned the home with John jointly, her interest passes directly to John and does not form part of her estate for distribution under her will.
Jane’s disappointed children are faced with the question as to whether to commence proceedings in the Supreme Court to rectify this problem. The issue severely impacts on the relationship between John and his siblings and could have been avoided.
If John and Jane had purchased the property as tenants in common, Jane’s interest in the house could have been dealt with more fairly with John having the option to pay-out the interests of his siblings.
Another option would have been to establish a loan from Jane to John so that the property could be purchased in his sole name, with Jane being protected by way of a lease for her lifetime. The lease could be registered and the loan secured by way of a caveat, repayable to Jane’s estate.
In addition to legal advice, it is important to obtain advice from a financial planner in relation to how granny flat arrangements affect Centrelink entitlements in circumstances where there may be a deemed “gift”.
