Family Property Arrangements - Part II
Elderly parents moving in with children.
In our Autumn 2016 edition, we outlined some of the issues that need to be considered in situations where parents lend money to assist their adult children in the purchase of a property. In this article, we discuss some of the issues that can arise in family property arrangements whereby parents (typically elderly) decide to sell their own home and move in with their children. The following types of arrangement are the most common:
- A parent occupies a room or rooms in the adult child’s home, often making a financial contribution towards the outgoings associated with the property;
- The parents move into a “granny flat” on the property, which may be fully or partly self-contained;
- The parents pay for the construction of a second dwelling to be constructed on land owned by the child.
The types of financial contributions that parents make in such situations are many and varied. At one end of the spectrum, the parents will make payment of a weekly amount akin to board. This is more often the case with arrangements were the elderly parent moves into a spare room in the child’s property. At the other end of the spectrum, parents may make a significant financial contribution, either in the form of paying for the cost of construction of a granny flat or second dwelling or making a significant lump sum payment to the child.
Issues to Consider
Needless to say, family members do not typically enter into these types of arrangements expecting them to go wrong. Nevertheless, circumstances sometimes change and things to do not always work out as anticipated and these types of arrangements may come to an end sooner than expected. This can create all manner of difficulties. For example:
- The parent may need to move into full time residential care, either because the child is unable or unwilling to provide the level of care required. The parent may need access to the funds they have introduced to the child’s property in order to pay for that care but the children may not be in a position to repay those funds.
- The child decides that they wish to sell the property for some reason. For example the child’s relationship may break up, the child may wish to move overseas or to another property or the child may encounter financial difficulty. In the worst case scenario, if the property is sold at a mortgagee sale, the parent could find themselves in a situation where they effectively lose all the money that they have put into the property and have nowhere to live.
- For a variety of reasons, the child decides that they no longer wish to have their parent living with them, whether that arises from a change in the child’s circumstances or they are no longer willing or able to look after the parent or the parties have simply fallen out.
In a situation where the parent is simply making regular payments akin to board or a contribution to household expenses, there is probably no particular need for security issues. If, however, the parent is to be making a significant financial contribution, the issue of security for that contribution should certainly be addressed otherwise the parent is vulnerable to the situation where they are no longer able to live on the property notwithstanding the financial contribution that they have made. The types of arrangements that should be considered include:
- The parents taking a share of the ownership of the property in proportion to the financial contribution that they are making;
- The parents taking a mortgage over the property for their contributions (although in the current environment that is only likely to be a viable option if the property is otherwise mortgage free);
- The parent being granted a “licence to occupy” a part of the property (eg: the granny flat).
The examples referred to above offer varying degrees of security. For example, a licence to occupy will generally only be binding on the current owner of the property and may not prevent the property from being sold and can otherwise be terminated relatively easily whereas taking a share in the ownership of the property will provide considerably more security but often has additional complications.
Family property arrangements whereby parents move in to live with their children can often work perfectly satisfactory from the perspectives of all parties. Generally, the best way of ensuring such arrangements will work satisfactorily for all parties is to ensure that all parties:
- Understand the nature of the arrangements and each other’s expectations;
- Understand that circumstances can and do change and that these types of arrangements may result in less flexibility that would otherwise have been the case;
- Understand that such arrangements may not work out for all parties and have agreed in advance of what is to occur when one or other party wishes to bring the arrangement to an end;
- Have obtained independent legal advice and recorded the arrangements between them in writing.
Although it is impossible to completely avoid problems arising, where parties have taken the steps referred to above the scope for problems arising is considerably reduced. Furthermore, in the event that problems do arise, such problems are often more easily resolved saving the parties considerable cost and anguish and avoiding what might otherwise be an irretrievable breakdown in the family relationship. However, more often than not parties enter these types of arrangements assuming that everything will work out and that because they are family members, they will look after each other’s interests. However, as mentioned above, circumstances can and do change and if the parties have not allowed for this and taken the appropriate precautions in the form of having obtained independent legal advice and properly documented the arrangements between themselves, the outcome can be disastrous for all concerned. Therefore, parties seeking to enter into these types of arrangements should seek advice prior to entering into the arrangement, rather than waiting for things to go wrong.