Published in the Coffs Coast Advocate on 17 January 2015
James, his wife and children live in Coffs Harbour, having relocated from Sydney several years ago. James’ mother, Mary has visited Coffs Harbour a number of times, including staying with James during the recent Christmas break.
Mary was widowed a couple of years ago and is finding it difficult to maintain her home in Sydney. She also wishes to spend more time with James and her grandchildren. After a number of lengthy discussions, James decides to allow Mary to build a granny flat on his property after she sells her Sydney home.
The granny flat is to be connected to the main house by way of a covered walkway and it is likely that it will be permitted by council. The cost of the build is approximately $100,000. James and Mary agree that if Mary stays in the granny flat for her lifetime, she will not seek repayment of any funds and James will receive the benefit of the improvements to his property.
A number of issues arise, including;
- What happens if Mary and James have a falling out and/or one of them wishes to relocate?
- What if Mary requires a higher level of care in the future and needs to enter a residential aged care facility?
- Can Mary rent-out the granny flat if she vacates?
- Will the arrangement affect Mary’s age pension? Does the arrangement comply with Centrelink’s “granny flat interest” requirements?
- Is the cost of the build a loan or a gift?
- Does Mary’s contribution to James’ property give rise to a “constructive trust”, giving Mary an equitable (and caveatable) interest in James’ property?
- What happens if James’ relationship with his wife breaks down and a property settlement is sought?
- What if Mary enters into a relationship?
- What are the implications of the terms of James’ and Mary’s wills?
- Are there any taxation consequences?
In order to minimise the potential for legal action and to protect their future relationship if things do not go according to plan, James and Mary wisely decide to document their arrangement in writing. They both seek independent legal advice and after executing a deed and updating their wills, James and Mary are relieved to have more certainty about their future.
