As they age, some older people decide to either live with an adult child (in their own home or the adult child’s home) or to construct a granny flat on land that belongs to that child.
Common scenarios discussed below include:
• purchasing a property with an adult child;
• using the family home as security for a loan;
• granny flat arrangements.
The older person and the adult child usually agree that in exchange for the older person passing their property or proceeds of the sale of their home to their child, they will be cared for, if and when they need it. Other benefits include being closer to grandchildren, not being alone, and not having to go into aged care if their health fails. This type of agreement is sometimes referred to as an “assets for care” arrangement.
While these arrangements can be successful for both parties, often little thought is given to how to resolve issues when things go wrong. Often the older person trusts their child and believes they will do the right thing if a disagreement occurs so they do not seek independent legal advice. Unfortunately, sometimes unforeseen circumstances (e.g. the child’s relationship breaks down, the child becomes unemployed or bankrupt) create problems and the older person or child may seek to leave the arrangement.
It is always important to seek independent legal advice and to create written agreements detailing what is agreed upon, even within a family, in case the arrangement fails.
Centrelink has specific rules for funds paid into what are termed “granny flat” arrangements (which can include a variety of property arrangements, not just granny flats). If making a decision about transferring property or assets in exchange for care, advice should be sought from Centrelink.
For more information on social security, see Dealing with social security.
Before entering these agreements, considerable thought should be given by all parties to what happens if the relationship breaks down, if the child’s marriage breaks up, or if a parent’s health deteriorates past the point where they can be cared for at home. It is preferable that all such financial agreements be put in writing.
If you are considering transferring part or all of your home to a family member, or selling your home and giving the family member the money so that they can care for you in the future, it is very important that you:
• think carefully, especially about how it will affect your relationships;
• talk to all those involved;
• talk to someone independent and get expert advice;
• understand how it will affect your pension, tax and future aged care fees and charges;
• protect your interests (e.g. by having a formal family agreement, or at least putting the agreement in writing);
• put alternatives in place in case things go wrong.
The following section discusses some common scenarios where financial abuse can occur, and what older people can do when things go wrong.
In this scenario, the older person agrees to sell the family home and put the money into purchasing a larger property, with room for their adult child and family. Often the arrangement is that the parent’s cash will be part of the purchase funds and the balance will be provided by the child by way of a mortgage over the property that the child will pay. This is an attractive option for some families as the older person’s home is usually a valuable, mortgage-free asset, and physically too large for one person. This option allows the older person to assist their child in the competitive housing market and to pass on wealth to the next generation. However, if the arrangement fails and one or both parties wish to leave the property, it can be difficult for the older person to retrieve their contribution if things have not been arranged fairly.
Issues to consider include:
• While the older person may believe they are on the Certificate of Title, often they are not. This can make it difficult for the older person to retrieve their investment if the arrangement comes to an end.
• The older person may be on the Certificate of Title but may also be a co-borrower on the mortgage, even though they have agreed that the child will pay the regular payments. If the child ceases to make the payments for any reason, the parent may be required by the bank to pick up payment of the mortgage. Older people on Centrelink age pensions struggle to do this and, if they can’t meet the repayments, the property is then at risk of being sold by the bank.
• The mortgage may be set up to allow for re-draws against the mortgage, and the older person is not always aware of this. This means that they may see the mortgage payments are being made and feel everything is okay but in fact money is also being taken out and potentially their equity in the home is being eroded.
Always seek independent legal advice if you are considering purchasing a property with an adult child, or if you wish to leave such an arrangement.
Sometimes an older person agrees to use their home as security for the purchase of a home by one of their adult children. Often there is significant pressure for them to do this because of the difficulties younger people are facing in relation to home ownership. Banks may agree to loans but require the additional security of the family home.
Issues to consider include:
• If the mortgage is not paid by the child for any reason (e.g. illness, job loss, relationship breakdown, etc.) the family home is put at risk, as the older person is unlikely to be able to pay any outstanding and ongoing mortgage payments.
• Changes to an older person’s assets may affect their pension entitlements.
Always seek independent legal and financial advice if you are considering using your home to secure a loan for a family member.
Older people sometimes decide to pay for the construction of a granny flat or self-contained unit on a child’s property.
• Local councils have different requirements in relation to these types of structures. The financial implications of the construction of a granny flat can differ considerably depending upon the legality of the structure and permit type. For example, a construction that does not have a permit may have to be pulled down or removed before the house can be sold.
• If the council only allows the construction of a “dependant person’s unit”, the unit cannot be used for other purposes (e.g. as rental accommodation). As such, its value may be considerably less than what it actually costs to build it. These types of issues should be thoroughly researched prior to commencing building.
• If the relationship sours, or the older person needs to move into a facility with a higher level of care, they are unlikely to recover the money the unit cost to build. These units are hard to sell as the removal costs are significant, making the purchase of a second-hand unit an unattractive proposition to potential buyers.
When any of the above scenarios fail, the older person can be left with no funds, no home and a soured relationship with family members.
Often the older person may not have a legal interest in the property because they are not on the title. However, depending on the circumstances, the older person may have an equitable interest in the property. Legal advice should be sought as soon as possible to pursue that interest, especially if the older person is not on the title at all.
A caveat claiming an equitable interest should be lodged as a protection from any unilateral action by the title holder, such as selling the property or refinancing the mortgage.
While a caveat does not stop the sale of the property per se, it remains in place on the title until it is withdrawn by the caveator. This will provide an incentive to the adult child to settle the matter with the older person because buyers must have clear title to finalise their purchase.
Seeking independent legal advice as early as possible is advisable so that any evidence is both well remembered and documents are available as proof.
Legal action to recover funds is complex and could involve applications to the Building and Property List at the Victorian Civil and Administrative Tribunal (VCAT) if the dispute is between co-owners, having either a legal or equitable interest.
Other scenarios may require action through the County Court or Supreme Court, which can be complex and costly.
Another issue is that a parent may have paid half the purchase price and their adult child paid the balance through a mortgage in that child’s name. Drawdowns and refinances by the child, without the parent’s knowledge, may increase the mortgaged amount to more than the original half share. If this were to happen, then the parent cannot recover the amount they originally put in, as banks are secured creditors and their interest comes first.
Parents or older people are sometimes asked (or pressured) by children or other family members for a loan to buy property, or to put money into a business or other financial investment. Unfortunately, these loans are often based on verbal agreements and the terms are not discussed in detail. Assumptions are made by both parties and sometimes these assumptions are inconsistent.
When loaning or gifting money to a family member, it is very important to be clear what the agreement is right from the outset. Things to establish:
• Is it a gift?
• Is there an expectation that the money will be repaid?
• If the money is to be repaid, when and how? Will interest be paid?
• What happens if the money cannot be repaid?
An agreement in writing setting out how and when a loan should be repaid is essential, particularly when things go wrong. Often the family member who has been provided with funds will claim they do not have to repay the money as it was a gift. In law, gifts cannot be claimed back no matter what circumstances occur later on. However, money owing on loans can be persued through the courts.
Another matter that should be considered before loans or gifts are given, is the potential impact on any government payments the older person may be receiving. If considering giving a loan or a gift, older people should be aware that there are strict Centrelink gifting rules that only allow the sum of $30,000 to be gifted over five years without impacting on Centrelink payments. If a transferred amount is detected by Centrelink, the older person’s pension can be reduced totally or partially. Loans do not attract this penalty but Centrelink may require evidence that it was a loan and not a gift: a verbal agreement usually does not suffice.
If they become ill or frail, some older people choose to provide access to their bank accounts, appoint a payment nominee, or nominate a family member for Centrelink purposes. In this instance, they are requesting that the person acts on their behalf and they do not give permission for their funds to be used, other than for their benefit. If the appointed family member misuses this access, they are committing financial abuse.
Often the older person is unaware their money is being misused, until they find their accounts have been depleted. Usually the person wrongly using the money has spent it and has no assets from which repayments can be made. This makes retrieving the money nearly impossible.
Obtaining a court order does not guarantee the funds will be repaid, if there is nothing to get. At best, it may provide that should the perpetrator’s situation improve in the next 15 years, the order can be enforced. This timeline may not be of any use to an older person. If action is possible, then attention needs to be paid to any applicable limitation of action period, to avoid missing the opportunity to sue for recovery of the funds. Generally, this is six years from the date the action accrued; however, it is wise to get legal advice as soon as possible.
Having an enduring financial power of attorney in place is important for when an individual experiences loss of capacity or serious ill health.
The person who makes the power of attorney is called the principal. It is important that the attorney(s) appointed by the principal clearly understand that their responsibilities are to the principal not to themselves. They must always act in the best interest of the principal and in accordance with what the principal would wish to happen.
Provided the principal has legal capacity, attorneys who misuse funds can be removed by the principal completing a revocation document. If the principal is no longer legally competent, an application can be made to the VCAT. Depending on when the abuse took place, VCAT can also order the attorney to account for how and why they spent any missing funds and make an order to repay it. However, like with any debt matter, if the attorney has no assets and the funds have been spent, it may not be possible to recover any money.
The Office of the Public Advocate booklet, Your Voice: Trust Your Choice, provides tips for older people making enduring powers of attorney.
For more information on powers of attorney, see Understanding powers of attorney.
Older people may sometimes be asked to sign documents they do not understand and cannot read. The risk of this is increased for older people who are reliant on their family for support and advice. This can include people with limited English and/or who are not literate in either their original language or English. Older people with vision impairment may sometimes be unable to read documents for themselves and therefore put a lot of trust in their children or other family members to give them honest information about what they are signing.
Take care if assisting an older person to sign a document who is vulnerable because of illiteracy, second language issues or limited or no sight. An independent, qualified interpreter should always be used to explain what is being put before them.
Pressure to sign a document that a person does not want to sign or does not understand is abuse and an intervention order is a possible course of action.
There can be a number of reasons that an adult child may wish to return to live in their parents’ home for a short or long-term period. This arrangement may work well for both the adult child and the older parent, but it can also be a source of conflict, which can become abuse or family violence.
When adult children seek to return to live in their parents’ home, the request may be sudden and unexpected. Parents may have little time to consider whether they really like the idea, or to discuss how living arrangements might work. They may feel pressured by the child or other family members to agree to the arrangement even if it is not what they want. Having an adult child (and possibly grandchildren too) suddenly sharing an older parent’s house is not always easy and the child’s behaviour may make things worse. Things might go well in the short term but, over time, these situations can deteriorate, and some people even end up afraid of their adult children.
When children seek to return to their parents’ home, they are often motivated by something going wrong in their own lives. They could be dealing with a range of problems, which may affect their behaviour and, over time, create problems for the older person. These problems can include:
• violence: some adult children who return to their parents’ home are fleeing family violence, while others may have been the cause of it;
• depression, anxiety or other mental health issues: mental health problems are increasingly common in today’s society, and may be brought on by a relationship breakdown or substance misuse;
• alcohol or drug abuse: again, a common cause or effect of relationship breakdowns;
• gambling issues: problematic gambling can cause financial stress and dramatic mood swings;
• unemployment or financial difficulties.
Whether adult children already live in the home, or the older person is just considering the possibility, it is always a good idea to set out some ground rules. Even if those involved do not want a formal written agreement, it is wise to have a conversation about the different aspects of living together. Although conversations of this sort may be uncomfortable, many problems can be avoided when both parties’ expectations are clear. It also gives everyone a common foundation from which to raise any issues they may have later.
If abuse is occurring, of whatever sort, it may be possible to obtain an intervention order that excludes and removes the adult child from the house.
For more information on intervention orders, see Family violence.