Intergenerational Living: Exploring Housing Options for All Ages
As the cost of living keeps rising, more people in Canberra are considering intergenerational living solutions to tackle housing costs and provide support for both younger and older generations. . This involves having two generations live together under one roof, sharing costs, care, and companionship.
While it might not always be seamless, this setup offers a chance for both groups to meet personal, health, and financial goals.
Living together across generations can be a lifeline, especially during health challenges, loneliness, or financial stress. Having family around brings emotional support and, if well-organised, financial benefits.
This approach can also create a solid financial foundation, helping the younger generation and providing better care for older family members.
How Can an Intergenerational living work?
Growing up in Canberra, I was lucky to share my childhood with my Grandmother. She was a widow who moved to Australia in the mid-1970s and lived with us. Looking back, she was always there for me. On the flip side, my parents cared for her until the end.
Now, twenty years later, not much has changed in this living arrangement. It's still a simple concept where different generations live together to support one another. However, it's now known as the "granny flat arrangement" or "granny flat interest."
Government agencies use these terms to assess living situations where money or assets are exchanged for a lifelong place to live in a home owned by the recipient of the funds.
According to Craig Phillips, a senior financial planner and aged care specialist, this arrangement has gained attention due to its minimal or no impact on social security and finances if structured correctly. Beyond the legal and financial side, the granny flat arrangement promotes unity, support, and companionship.
Diverse Forms of Intergenerational Housing:
Contrary to what you might think, the "granny flat arrangement" covers various living setups to suit families' needs. It's not just a small house in the backyard. Here are some examples:
Detached Backyard Unit: This is the most common form. A small standalone house, often called a "granny flat," is built in the backyard. It has its own facilities and provides privacy while staying close to the main home.
Attached Unit: Here, extra living space is connected to the main house. It could be an extended wing or a separate floor with a shared entrance. This allows interaction and independence.
Integrated Living Space: Sometimes, there's no physical separation. Part of the main home is designated for the older generation, giving them their space while sharing common areas.
Caravan or Demountable Structure: For a temporary or flexible solution, a caravan or demountable structure can be used. It can be placed on the property, providing a self-contained living space.
By exploring these intergenerational housing options, we can find ways to make housing better and more affordable for all ages.
Formalising Granny Flat Arrangements:
Creating a written agreement is the way to establish clear terms and conditions for a granny flat arrangement, while also planning for potential changes or unexpected events. This agreement encourages thoughtful, long-term planning and prepares for situations where the arrangement might not work out or unforeseen circumstances arise.
To ensure the well-being of both parties and prevent possible conflicts, having a written legal agreement is crucial. This agreement outlines the arrangement's details, defines the rights and responsibilities of each party, and can cover aspects such as occupancy, payments, property expenses, maintenance, care, and how disputes will be resolved.
It's also important to think about potential exit strategies, whether the arrangement ends voluntarily or involuntarily. While there might be legal costs involved, the agreement itself doesn't incur capital gains tax. This is because legislation has exempted formalised granny flat rights from CGT implications for the recipient
Understanding Centrelink's Treatment of Granny Flat Arrangements
It's important to grasp how Centrelink handles granny flat arrangements, as it affects issues like deprivation and homeownership. These arrangements can let someone transfer assets to another person in return for a life interest, without causing deprivation. Additionally, the person can be classified as a homeowner, and the value of the granny flat interest isn't counted as an asset.
What's a Granny Flat Interest? From Centrelink's perspective, a granny flat interest means having a life interest or the right to accommodation for life if:
- The person pays for this life interest or right to lifelong accommodation.
- This life interest or accommodation right is connected to a private residence that's intended to be the person's main home.
Usually, the amount paid for a granny flat interest reflects its value, and deprivation rules won't be applied.
Examples of Granny Flat Arrangements Without Deprivation:
- Someone transfers their home's title to another person in exchange for a life interest in that person's home.
- Someone pays for building premises on another person's property in return for a life interest in that property.
- Someone buys a property under another person's name in exchange for a life interest in that property.
Granny flat arrangements can enable asset transfers to someone else while securing a life interest without involving deprivation.
Reasonableness Test: If a person transfers additional assets along with a granny flat arrangement, Centrelink uses a 'reasonableness test' to determine if deprivation applies. This test is also used when the value of the granny flat interest is unclear or when multiple granny flat arrangements are involved.
The 'reasonableness test' applies a formula to assess the granny flat interest's value differently from the amount paid.
Formula for 'Reasonableness Test' amount = combined annual partnered pension rate x conversion factor Here:
- The combined annual partnered pension rate at the time of writing , which is $41,704, is used regardless of marital status.
- The applied conversion factor depends on the person's age, or for married couples, the age of the youngest member is used.
Understanding Centrelink's handling of granny flat arrangements helps navigate complex issues related to deprivation and homeownership.
Understanding Homeownership for Granny Flat Interest Recipients
When someone on income support sells their main home and plans to use the money to set up a granny flat interest, there are some special considerations. The money from the home sale might be exempt from assessment for up to 12 or even 24 months under certain conditions. This could also affect Rental Assistance (RA).
The value of the granny flat interest is called the EC. If the EC is more than the extra Allowable Amount (EAA) then the granny flat resident is a homeowner. The EC IS an asset for a non-homeowner. Here's a simple table that summarises how the assessment of home sale money works when someone wants to establish a granny flat interest:
Ensuring a Safe Granny Flat Arrangement: Important Areas to Consider
Tax Matters: It's smart to understand the tax implications tied to your granny flat arrangement. This means being aware of possible tax responsibilities or advantages.
Estate Planning: Think about how the granny flat right could influence your entire estate plan. This includes looking at how it might impact your assets and the way you plan to pass on inheritance. Making sure your estate is set up properly is key.
Centrelink Benefits: Check how your granny flat setup might influence your eligibility for age pension and home care packages from Centrelink.
Preparing for the Unexpected: Having a plan for unexpected situations is essential. Develop a strategy for when things don't go as planned. This way, you can navigate any changes or endings to the arrangement with clarity and peace of mind.
Craig Phillips of Phillips Wealth Partners puts it this way: "Granny flat interest arrangements are a modern way of intergenerational living, recognising how families and their housing needs are evolving. These setups offer a chance for families to stick together, share resources, and support each other over generations. Whether it's separate units, attached spaces, or blended living, the core of intergenerational living remains unchanged: building strong family connections while enjoying the benefits of shared living."
DISCLAIMER: The information in this update is current as at 16 August 2023. article was prepared by Phillips Wealth Partners Pty Ltd (ABN 74624858420) trading as Phillips Wealth Partners and a Corporate Authorised Representative (No. 334567) of Insight Investment Services Pty Ltd ABN 22 122 230 835 AFSL 309 996. The information and examples are of a general nature only and should not be regarded as specific aged care, taxation, superannuation, retirement investment or social security advice. It is based on the continuation of present aged care, taxation, social security, superannuation laws, rulings and their interpretation as at the date of this presentation.