Estate planning: avoid granny flat pitfalls

Granny flats: Get legal advice before moving in warns Equity Trustees

Latest in Finance
SMART MOVES: Thinking of downsizing to a granny flat? Make sure you formalise decisions and get legal advice before moving in.

SMART MOVES: Thinking of downsizing to a granny flat? Make sure you formalise decisions and get legal advice before moving in.


Estate planning: How to avoid granny flat pitfalls.


MOVING to a granny flat in the backyard of a family member can seem like the perfect solution to downsizing and staying close to family - especially when the old family home is too big and further from the grandchildren than you'd like.

But before you make the move, understand the risks involved. That's the advice from Marie Brownell, senior estate planning lawyer with Australian specialist trustee company Equity Trustees.

"It's easy to see the attraction; maybe your health is not what ts used to be, or perhaps you are lonely after the death of a partner," she said.

Sadly, in our line of work, we often see cases where people have ended up in very difficult circumstances at a time when they are most vulnerable.

Ms Brownell said as a rule, the assets you have built during your lifetime, especially the value in the family home, should provide you with the financial security you need and deserve as you age.

"It's unfortunately common and we often see cases where Mum or Dad are recently widowed when a well-meaning adult child suggests they sell up the family home and move into a purpose-built granny flat on their property," she said.

They promise to take care of everything, including Mum or Dad, who finally decides this may be for the best.

"The family home is sold, and the parent is persuaded to put the proceeds of the sale into the adult child's mortgage, loan it to them, or invest it in something like a holiday house 'for the whole family to enjoy'.

"Sometimes it's presented as an 'exchange' or just to 'help out'; sometimes to offset the 'cost' or to contribute in some way to the new arrangement.

"This leaves the parent in a perilous financial situation. They've lost the value of those assets and if the time comes when a place in aged care is needed, their options are now limited."

Ms Brownell said in the worst cases where the money has gone into the family mortgage, the house (and granny flat) may be sold with the children moving on to a new home.

Or if the adult child goes through a separation, the house may have to be sold under the terms of a property settlement.

"This leaves Mum or Dad to find alternate accommodation, with limited options and nothing left to lean on financially. Which is nothing compared to the stress, shame and heartbreak of finding themselves in this situation."

While no one ever thinks this will happen to them, it sadly does, and can, happen.

"We wish we never saw it happen to anyone," she said.

Seek legal advice

There are a number of ways to protect yourself financially if you decide to "move in with the kids".

Obtain legal and financial advice beforehand to ensure you are properly protected and fully understand the risks.

If the granny flat decision is made by an attorney under a power of attorney, and someone is concerned about the decision made or think that Mum or Dad could be being financially abused, there are steps that can be taken to have the decision and attorney appointment reviewed through the relevant state or territory tribunal or Supreme Court.

"The best way to avoid potential financial disasters is to make informed decisions, plan and formalise decisions in the appropriate documents," Ms Brownell said.

"Do it when you are well in control of your life and when your capacity to make decisions cannot be disputed.

"Don't wait. It's perfectly fine for you to make sure you are safe and secure in your future."

For more information click HERE