Granny Flat Agreements: A Smart Option for Families Supporting Ageing Parents
If you're exploring retirement options or considering moving a parent into your home, a granny flat agreement could be a practical solution that offers security, support, and peace of mind.
A granny flat agreement is a legal arrangement where a parent (or both parents) pays money or transfers assets in exchange for the right to live in a part of their child’s home. It doesn’t need to be a separate building – just a clearly defined area of the home where the parent has exclusive use for life.
These agreements can help families stay close, provide care, and offer an alternative to aged care – but they must be properly documented to avoid unintended legal or financial consequences.
Why Consider a Granny Flat Agreement?
Granny flat agreements can offer real benefits:
They provide elderly parents with a stable home and family support
They can be more cost-effective than aged care (depending on health needs)
They allow adult children to assist directly in care
Centrelink may exempt the money paid from gifting rules if structured correctly
How Does the Financial Side Work?
To establish a “granny flat interest,” there needs to be a transfer of assets or money to the owner of the property (usually the child), in exchange for a lifetime right to live in the home.
This payment might come from:
Selling the parent’s home
Cash or savings
Stocks, jewellery or other valuable assets
Importantly, Centrelink will assess whether the parent paid a fair amount. If it’s more than the value of the life interest, Centrelink might treat it as a “gift,” which could reduce pension entitlements.
Also, once the money is handed over, it no longer forms part of the parent’s estate. This means it won't be distributed according to their Will, which can create tension between siblings if not properly managed.
What If the Property Needs to Be Sold?
A granny flat interest can’t simply be revoked. If the child wants to sell the home, they may need to:
Include the parent’s interest as a condition of sale
Transfer the interest to another suitable property
Compensate the parent financially
What Should the Agreement Include?
A well-drafted agreement helps avoid misunderstandings. It should cover:
Living arrangements, including privacy and independence
Who pays for bills, maintenance, and general expenses
Level of care or support expected (e.g. transport, meals, cleaning)
Whether the parent will assist with childcare
What happens if the parent’s health declines
Plans if the child passes away or the relationship breaks down
What happens if the arrangement ends earlier than expected
What Could Go Wrong – and How to Avoid It
Unfortunately, things can and do go wrong. A parent’s health might deteriorate, family dynamics might shift, or expectations may not align. Without a clear agreement:
Centrelink payments could be affected
Siblings may dispute perceived advantages
The parent might struggle to recover the funds or find new accommodation
The best protection is a legally documented agreement that plans for the unexpected and is transparent with all family members.
Book an Appointment with Kristy Hatcher
Kristy Hatcher, our Senior Estate Planning Solicitor with over 20 years’ experience, specialises in tailored, compassionate legal advice for families navigating later-life transitions.
She’ll guide you through the legal, financial, and emotional considerations of granny flat agreements to ensure you and your family are protected now and in the future.
Book an appointment with our office today to get peace of mind and a plan in place.
