Some older people decide to live with an adult child (in their own home or in the adult child’s home) or to construct a granny flat on land that belongs to an adult child.
Common scenarios 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 on their property or the proceeds of the sale of their home to their adult child, they will be cared for, if and when they need it.
For older people, the other benefits to this type of arrangement include being closer to grandchildren, not being alone, having meals prepared or other housework done for them, and not having to go into an aged-care facility if their health fails. This type of agreement is called an ‘assets for care’ arrangement.
While these arrangements can be successful for both parties, often little thought is given to how to resolve issues if things go wrong. Often, the older person trusts their child and believes they will do the right thing if a disagreement occurs. So, the older person often does not seek independent legal advice before entering into an arrangement with an adult child.
Unfortunately, even with the best intentions, sometimes unforeseen circumstances (e.g. the adult child becomes unemployed or bankrupt, or the older person’s care needs increase so they can no longer be cared for in the home) create problems and the older person or adult child may seek to leave the arrangement.
The best thing a person can do is to seek independent legal advice before entering into such an arrangement, and to create written agreements detailing what is agreed upon, even within a family, in case the arrangement fails.
Centrelink and tax implications
Centrelink has specific rules for funds paid into granny flat arrangements (which can include a variety of property arrangements, not just granny flats).
Previously, an interest created in this way was subject to capital gains tax (CGT) if the funds were invested into the building of a separately occupiable dwelling, for which rent was charged. However, in the federal budget handed down on 6 October 2020, the Treasurer announced that from June 2021, CGT will not apply to the creation, variation or termination of formal written granny flat arrangements providing accommodation for older Australians or for people with disabilities.
If making a decision about transferring property or assets in exchange for care, advice should be sought from Centrelink.
For more information about social security, see Chapter 5.1: Dealing with social security.
Planning for a potential breakdown of an arrangement
Ideally, before entering these agreements, considerable thought should be given by all parties about what happens if the arrangement cannot be maintained (e.g. if the relationship breaks down, if the adult child’s marriage breaks up, or if the older person’s health deteriorates past the point where they can be cared for at home). It is preferable that all such considerations and agreements be put in writing.
If an older person is considering transferring part or all of their home to a family member, or selling their home and giving a family member the money so that they can care for them in the future, it is very important that the older person:
- thinks carefully, especially about how it will affect all their relationships;
- talks to all those involved;
- gets independent, expert advice;
- understands the tax implications (e.g. how it will affect the older person’s pension);
- understands how the agreement may affect the older person’s ability to choose or enter into an aged-care facility in the future;
- protects their interests (e.g. by having a formal agreement, or putting the agreement in writing);
- puts alternatives in place in case things go wrong.
For more information about the types of scenarios older people should consider before entering into such an agreement, contact Seniors Rights Victoria (SRV) or read SRV’s booklets, Care for your Assets: Money, Ageing and Family and Assets for Care: A Guide for Lawyers.
The following section discusses some common circumstances where financial abuse can occur, and what older people can do when things go wrong.
Purchasing a property with an adult child
In this scenario, the older person agrees to sell the family home and put the money from the sale into purchasing a larger property, with room for the older person, their adult child, and their family. Often the arrangement is that the proceeds from the sale of the older person’s property form the bulk of the purchase funds, and the balance is provided by the adult child by way of a mortgage over the property for which the adult child is responsible.
The older person may or may not be on the certificate of title of the purchased property. If the older person is on the title, they are usually also a party to the mortgage, even if the adult child makes the repayments.
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.
Issues to consider include:
- If the older person is not on the property’s title, it can be difficult for the older person to force the property to be sold, or to retrieve their investment if the arrangement ends. However, there are usually legal remedies for this situation; for example, the law of constructive trusts (see Muschinski v Dodds (1985) 160 CLR 583) and purchase price resulting trust (see Calvery v Green (1984) 155 CLR 242) may apply in such circumstances).
- The older person may discover that any borrowings have increased over an agreed or understood limit, thus reducing the equity in the purchased property.
- The older person may be on the property’s 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 adult child ceases to make the payments for any reason, the older 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 older person may be on the property’s title as a joint tenant, but they may have wanted to be a tenant in common in shares reflective of contributions so that, upon their death, their portion of ownership can be shared among all their children. (‘Joint tenants’ means that your share of the property automatically goes to the other title holders on your death and does not form part of your estate. Whereas, ‘tenants in common’ means that your share of the property will form part of your estate on your death, and will be dealt with in accordance with your will or – if you do not have a will – the laws of intestacy.)
- 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 repayments are being made and feel everything is okay, but in fact money is being withdrawn from the mortgage, which could reduce the older person’s equity in the home.
Always seek independent legal advice from a different lawyer to the one engaged by your adult child if you are considering purchasing a property with an adult child, or if you wish to leave such an arrangement.
Using the family home as security or going guarantor for a loan
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 adult 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 as they are likely to be on a fixed or limited income.
- Changes to an older person’s assets may affect their pension entitlements.
If you are considering going guarantor or using your home to secure a loan for a family member, seek independent legal and financial advice from a lawyer who is not the lawyer engaged by your adult child.
Granny flat arrangements
Older people sometimes decide to pay for the construction of a granny flat or self-contained unit on a child’s property.
Issues to consider include:
- 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 on 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. In this case, the granny flat has not added any value to the property. There are financial penalties for building without a permit: up to 500 penalty units, which equates to $90 870 (as at 1 July 2021) (s 16(1) Building Act 1993 (Vic)).
- If the council only allows the construction of a ‘dependent 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. If the relationship sours and the older person seeks to leave and take with them the value they added to the property, this may be considerably less than the construction costs. 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 they spent on building a unit. These units are hard to sell as the removal costs are significant (if this is actually possible), making the purchase of a second-hand unit an unattractive proposition to potential buyers.
Redress for failed assets for care arrangements
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. However, in some cases, there are legal avenues for redress.
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 what is known as ‘an equitable interest in the property’. This means that the law might see that in good conscience, the older person’s claim should be recognised in part or in full. However, there are many requirements that need to be met. Legal advice should be sought as soon as possible to pursue that interest.
Legal action to recover funds can be complex and could involve, if the dispute is between co-owners, applying to the Building and Property List at the Victorian Civil and Administrative Tribunal (VCAT). Other scenarios may require action through the County Court or the Supreme Court, which can be more complex and costly.
If relevant, 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 (s 89 Transfer of Land Act 1958 (Vic)). A caveat remains in place on the title until it is withdrawn by the caveator. Thus, it can provide an incentive to an adult child who wants to sell the property to settle the matter with the older person because buyers must have clear title to finalise their purchase.
Seek independent legal advice early on so that any evidence is both well remembered and documents are available as proof. Note that institutions (e.g. banks) often dispose of documentation after seven years.
Loans and gifts
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 include:
- 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? If yes, how will the interest be calculated?
- 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. Under the legal presumption of advancement in parent–child relationships, it is up to the older person to prove that the money was given as a loan and not a gift.
Money owing on loans can be pursued through the courts. Action should be taken as soon as possible to try to recover money owed. There is a six-year limitation period for commencing court proceedings to recover money owing on loans (unless special circumstances can be shown to exist). The limitation period starts from either the date the loan was made (if no repayment have been made) or from when the first failure to repay occurred.
Impact of loans and gifts on Centrelink payments
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 $30 000 to be gifted over five years, and no more than $10 000 in one year, without impacting Centrelink payments (Part 3.12 Social Security Act 1991 (Cth)). These rules apply to the gifting of both money and assets.
If Centrelink believes that the gifting rules have been breached, 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 notsuffice.
Use of funds without authority
If an older person becomes ill or frail, they may choose to provide access to their bank accounts or appoint a payment nominee for Centrelink purposes. In this instance, the older person is 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 person misuses this access, they are committing financial abuse. Misusing this access may also constitute a criminal offence, which can be reported to the police for investigation if the victim wants to involve the police.
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 within the next 15 years, the order can be enforced. 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.
Misuse of powers of attorney
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 (ss 63–70 Powers of Attorney Act 2014 (Vic)).
Revoking a power of attorney
Provided the principal (i.e. the older person) 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 VCAT’s Guardianship and Administration List (see ‘Contacts’ at the end of this chapter). 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 (s 116 Powers of Attorney Act 2014 (Vic)). 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 has published a booklet, YourVoice: Trust Your Choice, that provides tips for older people making enduring powers of attorney.
For more information on powers of attorney, see Chapter 8.7: Understanding powers of attorney.
Signing documents: Pressure or fraud
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.
Applying 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. Relief may be sought by older persons if documents or contracts have been signed under circumstances of pressure, fraud, unconscionable conduct, or undue influence (see Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Johnson v Buttress (1936) CLR 113; and Louth v Diprose  HCA 61).
Sharing a home with an adult child
There can be a number of reasons why an adult child may not move out of the family home, or 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. 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 perpetrator of family violence and been excluded from their own home;
- 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.
What can older people do?
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.
At a minimum, conversations and agreements should address the following aspects:
- what contributions towards household expenses (e.g. bills and groceries) are to be made;
- how chores will be shared;
- who is responsible for home maintenance;
- the duration of the adult child’s stay;
- what rent or board is to be paid; and
- whether or not partners can move in.
Failure to contribute to the household, especially if combined with a refusal to leave the home, and/or verbal, emotional and psychological abuse, can be considered to be family violence, for which there are remedies. 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 or allows the adult child to remain in the house but protects the older person from family violence and abuse.
For more information on intervention orders, see Chapter 4.4: Family violence.
If an adult child refuses to leave the home after being requested to do so by the older person, and the older person does not wish to apply for a family violence intervention order, there are other options available to the older person depending on the circumstances. These options require careful assessment of any safety risks to the older person while they are under the same roof as the adult child.
If the circumstances support that there is a lease or sublease arrangement with the older person as the landlord (e.g. rent is being paid), there may be an option to issue a Notice to Vacate in accordance with the Residential Tenancies Act 1997 (Vic). If the circumstances support that there is no lease or sublease arrangement, but rather a licence to reside (e.g. no rent is being paid, no exclusive possession), there is the option to revoke the licence to reside. This is done via a letter to the adult child, which provides notice of the date by which they must leave. Their presence after this date constitutes trespass.