Are you looking for ways to house your elderly parents without hurting their age pension?
Let’s talk about the Granny Flat Interest Rule.
It’s how ageing Australians are downsizing to live with family without potentially affecting their government payments.
Thousands of families are turning to granny flats and house extensions to support their parents. It’s a fantastic way to keep them close and out of age care facilities. On the flip side, grandparents want to know their children and grandchildren will be supported after they’re gone.
Funky Little Shack has teamed up with KReate Wealth on this free guide about the Granny Flat Interest Rule, and how it can benefit you and your family.
So let’s get started…
What Is The ‘Granny Flat Interest Rule’?
While on the age pension, Australians are deprived on monetary gifts to family members for five years if they fall under one of two categories:
- $10,000 in 1 financial year
- $30,000 over 5 financial years (cannot include more than $10k in single year)
Here’s an example: If you gift $50,000 to your child, Centrelink will deprive $20,000 of that for five years and still include it in your assets for the Asset Test for Age Pension. As a result, it can be a drain on the money you would rather in the hands of loved ones now. Head here to read more about gifting.
This is where the Granny Flat Interest Rule comes in…
Parents looking to live with family in a granny flat or house extension can transfer money or an asset (or a combination of both) to the family member/s they want to live with. This can be considered as ‘accommodation for life’ – where they live with family for the rest of their life.
This means you could potentially gift $200,000 into the family property for a luxury granny flat for you to live in… without Centrelink depriving a cent!
How Do You Take Advantage Of It?
OK, there are several ways to make the most of the Granny Flat Interest Rule to benefit you and your family.
Here are a few examples of what you could do:
- Transfer the ownership of your home to your family. Then build a granny flat or house extension for yourself, or continue to live within the house. It’s a great alternative to downsizing that allows you to stay on the family property.
- If you don’t have a home to transfer, use your money or sell other assets to do the same thing.
- Also, you could sell your home, gift that money to your children, and then live on the new property they purchase.
These are all great ways you can house your elderly parents. With a fully customised luxury granny flat you can stay close to loved ones, keep wealth within the family unit, and maintain your privacy and independence.
Some Things To Ponder
Of course, it’s important to remember what this will mean for your family when it comes to the ownership of assets, and what other effects it may have.
Here are a few things to keep in mind:
- The granny flat becomes accommodation for life. As a result, it’s not part of your estate when you pass away.
- You do not have ownership of your Funky Little Shack or the property.
- It could affect your cashflow, taxation and estate planning.
- It may cause disruption upon siblings. Therefore, it’s best to have open and honest discussions with your whole family before making decisions.
In addition, there are some other factors that could arise, including:
- Centrelink may consider the arrangement an uneven exchange, and consequently may affect pension payments based on a ‘reasonableness test’.
- If the parents move out of the home to aged care before five years, and it was expected this might happen, Centrelink may deprive the asset/money, affecting their aged care fees.
I know, it can be complicated to understand.
Financial planners, like the team from KReate Wealth, will guide you through the process to decide if the Granny Flat Interest Rule can be used for your family.
Firstly, you should talk to a financial planner about how it’s going to affect your pension, and whether it will work for you. You can contact KReate Wealth here.
Secondly, it’s important to discuss the arrangement with a lawyer, especially if there is more than one adult child. They will help you with a contract or agreement to clearly state how it will work.
The real beauty of the Granny Flat Interest Rule is most parents already plan on leaving their assets to their children. This simply allows you to do it earlier while maintaining wealth within the family unit.
Know you know how to house your elderly parents without hurting their age pension. Want to speak to us about designing the best luxury granny flat to suit your family?
KReate Wealth advised on the preparation of this article, which is to be used as a general guide only. It should not be relied upon as a substitute for seeking your own independent legal and financial advice.
Legislation is constantly changing. This article contains information as of this date and should not be relied upon.
The Granny Flat Interest Rule is case by case and there is a lot to consider. As a result, it’s strongly recommended to seek financial and legal advice before exploring this arrangement.