Tara (00:47):
Welcome back. Thank you so much for joining me. We are in for a very special treat today because I am interviewing a special guest, Nathan Bradley. He's an independent financial advisor, and Nathan came to talk to me and the art of estate planning in our monthly power hour about Granny Flats and co-living arrangements. Now as you'll see, this is a really complex topic. It covers off social security tax, estate planning, property issues, and Nathan does an incredible job at explaining how as professionals we can tackle these issues and the best practise and gold standard for when these issues come up on our matters. So I hope you enjoy this conversation
Nathan (01:39):
And we're going to talk about Granny Flats and co-living. So I've deliberately separated that out and you'll kind of get a sense why as we go through the presentation, but a few disclaimers. So firstly, I don't know, you haven't paid me. I can't possibly give you financial advice if you're watching this afterwards. If you're listening to the podcast cut up, this is not financial advice. I'm not a lawyer. This is not legal advice and importantly, and Tara's alluded to this, we've got maybe 40 minutes and some Q&A. This is an appetiser. There's so much behind the scenes with this. There's details and little rules and so much in this, we cannot get through it today. So don't message me and be like, well, you didn't say this. I mean, yeah, of course I did. I don't have time and that probably sets the tone of who's presenting with you today and taking one of the potentially most boring topics of all time, heavy Centrelink and tax matters, and hopefully I'm going to make it exciting for everyone.
(02:31):
Who am I? I'm an independent financial advisor specifically, that means I meet what's called 923 A of Corporations Act. I don't take any kickbacks or volumes or all sorts of fun stuff. It makes me a better advisor than everyone. No, it doesn't make me a better advisor. I just hold myself to a higher standard that I want to. Non independent advisors are also amazing, but I work in some interesting spaces. I work in emotionally and technically complex areas, so I do some retirement stuff, but I work in aged care. I work with some complex estate matters. I work in divorce spaces and I work with Centrelink a lot. So most of the work that I do is financial, but also hugely human focused. It's very behaviour orientated and I work side by side with family and estate lawyers all the time. I call that adjacent.
(03:19):
I am aware of things and I refer out or work with as much as possible because obviously I'm not a lawyer, but that's the work that I do. It's specialised in the sense that the kind of people that come along for these problems tend to have very similar needs, requirements, communication methods. Very commonly they're women between 55 and 70. Often they're the eldest daughter. If that's starting to ring bells for people, then you're probably not wrong there. And as my wife says, mums love me. So that gives you a bit of a vibe of who I am and why. Now, I'm curious to see if anyone has had inquiries of this nature. And I hate using the intergenerational word and I refuse to say intergenerational wealth transfer any more than I just did, but we are seeing this shift in older parties having a lot of money, generally assets and younger family members struggling, mortgage pressure, financial challenges, not being able to have kids or not being able to afford once they've got them, all those kinds of things.
(04:12):
Older Australians are getting lonely. They need care needs and due to the nature of households and how things have played out over the last couple of years, we've really started separating people. People are in their own homes. Everyone remembers the nineties when you go over to your friend's house after school or something and their nana lives there out the back or whatever it might be. That's tended to stop. And I think we are starting to see that conversation come to the forefront a lot more. It's coming along as, Hey, dad's died, mom's by yourself, or Hey, mom and dad are in another state, we're all here. How do we make this work? But we want to, and this is the catch with Granny Flats, and you'll see this sort of tone throughout today. There's usually a driver there that's really interesting. We don't want it to affect their pension.
(04:54):
We want to transfer inheritance early or cut someone out of the estate. They're really common, which is why I think from an estate planning lawyer perspective, you guys are going to see this all the time. Someone comes in and says, oh, I had an introduction yesterday for this. The brother took all this money off Dad when he was alive and he died and we found out mom wants to get rid of the house out of her estate or make sure we receive it and it's not up for challenge. What can we do? And the lawyer's like, okay, there's some stuff we can do in the will, but this is another thing. And sometimes people come in with this question, can I do this to get it out? Obviously that sets the hair up on a number of yours next when you're thinking about who is this for?
(05:32):
Because often these ideas Granny Flats, so you can conceptualise it as a solution as opposed to a trigger for a conversation. And that's really if you take nothing out of today, it's not about understanding the ins and outs of a granny flat. It's about understanding that the conversation you're having on that is bigger than the Granny flat rules for Centrelink itself. A granny flat, is it a block out the back of the house? Is it a planning law issue? Is it, as I mentioned, something you can chuck on their website to get more leads maybe. But specifically what we are talking about is where one party transfers assets or money to another party for the right to live there or the right for accommodation, not necessarily for the right to live in that house for the rest of their life. That's what we're going to focus in on and then obviously lean into some of those alternatives as we go.
(06:22):
We are also talking about co-living. So as I've just alluded to, it can be seen as a way to circumvent estates or boost Centrelink, but really it's a solution. It's a conversation around how do we make sure that the older Australians are taken care of, they're safe, they've got housing security, they're not lonely, and the compensation for the younger people taking on that role is adequate because it is more than just a pre inheritance. They're taking on responsibility, they're taking on a lifelong commitment, and I think this is really important. Sometimes the idea of being able to not have a mortgage and mom can move in, sounds great, but also we've never really lived with mom and do we really get along that well? And that can become a bit of a problem. So let's get into some of the nitty gritty. There's four main aspects that I like to speak to when I think about Granny flat arrangements, Centrelink, there's the ATO, there's the legal aspects and there's the lived reality of that, and I think each of those is cut into many different shapes, but if we think about it in those aspects, they're all I think easy to understand for clients and easy to follow in your own head.
(07:29):
We have to think, consider Centrelink. We've got to consider the ATO. We've got to consider the legalities and what actually is going on here. So we're going to get a little technical right now and we're going to start getting into some of the rules talking about granny flat arrangements. Centrelink define what our granny flat arrangement is, and I ripped this Strat out of the social security guide because no need to paraphrase something someone pays for a life interest or a right for accommodation. That needs to be a private residence that is a home. And then those, that payment, that transfer of assets or money is then exempt for we call deprivation. Deprivation is when you get rid of an asset and Centrelink counted as your asset for five years. So a lot of you might be familiar with gifting rules. People think of gifting, but it's actually deprivation and gifting is an exemption.
(08:20):
You can gift up to $10,000 a year or $30,000 over five years and all that is is an exemption on deprived assets. So that deprivation is the key rule and a big part of this section, a big part of where people get this wrong or potentially move too quickly and then they come and see me for advice and we could have done something earlier, is that the value of that transfer is key to get right in this. Because how they value the granny flat is how they value what is not deprived or what is ignored for Centrelink. So thinking about that in practical terms, what we're really talking about is someone wants to move into their kid's house, they want to move in under a granny flat arrangement. Remember it doesn't have to be a property out the back, it can just be moving into the house.
(09:06):
They give an amount of money across the amount of money that Centrelink ignore is what we're talking about is the value of that grainy flat and it's really key part of it. It's only three dot points there, but I'm going to spend a little time exploring it with you guys with not too much detail, but enough they define it as the value of the transaction first and foremost. And then if it's not that we use a thing called the reasonableness test. Most people understand this as this reason orders test component. It's a calculation and we can work out how much actually we start at the value of the transaction and that's really key because people think of Granny Flats as mom and dad sell their house, pay me money, move in, we build a plot out the back, we extend, they move into the garage.
(09:47):
I don't know that is what they think about when it's actually more like mom and dad could give the entire house the full house, the $2 million house, the $5 million house and not $1 more and not pay stamp duty and the value of the granny flat is $5 million. If they just do cash, we fall back to the reasonableness test and the amount they can give is dependent on the age of the youngest person entering that arrangement as in the youngest older person and a life table. Someone at 65 can do about 900 grand, someone their nineties can do about 150. So you can immediately see a timing matter here where we've got a situation where giving an entire property at $5 million and having that exempt versus selling the house, giving the money across, buying mom a house and having a move in or having a move into your home changes this enormously and getting this right.
(10:38):
If you get it wrong, one more dollar in the wrong place, they go, well, mom's 65, she's given a $5 million house. 900 grand is going to be ignored, but the other $4.1 million is not. And now that's assessed. So this is where it's really, really important to make sure we get it right. I mentioned the reasonable test, that's then a calculation that we can run. You can jump on the social security guide and have a look at it and effectively it multiplies this special lifetime number, which is based off a life table by the couple's age pension amount. And you get a number and that number is what as I mentioned, is exempt. So the idea here is let's say mom and dad are living in a house right now and they want to stay in that house and then eventually they might move in with their child.
(11:23):
They could gift the entire property, stay in that house. If the arrangement's written correctly and they have the right to accommodation, they could then sell that house and move in later. They're not selling the house, the house is now in the name of the children. It's the kids' asset. The money is gone from their situation entirely and I'm sure a bunch of estate planning gurus out there are going, oh, okay, now there's going to be a bunch of ethical stuff in this that I'm not going to talk about today, but you're all amazing. So I'm sure you're already thinking of it. I do hint at it, but that's an entire hour thing in its own. But that's kind of to give you some workings of how that might work. So title transfer can be part of it. Fit outs and construction can be a part of it.
(12:00):
It's not just around the purchase or the transfer of a property. One interesting part of this is the Centrelink Advantage component, so people might know, but in the ATO, everyone knows the ATO has anti-avoidance provisions. Doing things just to save on tax is technically not allowed. But if you're doing it for more than one reason, which is always a weird thing, of course I'm trying to save on tax, but then it is, and in the same way Granny Flats can be seen in the same light. If the only reason that Granny flat is being done is to gain a Centrelink advantage, even if it's the full value of that house, the reason we'll just test supplies. So now you can start to think about why advice is important because understanding the reasons and documenting things properly and following through on, we're doing it for multiple things, not just Centrelink.
(12:47):
The aim is to ensure safety and care and family collectivity and the Centrelink is actually just enables that. It's not the reason we're doing it, that's how they should be looked at. The second you start doing it to just reduce or improve Centrelink outcomes, Centrelink C through, there's also one more Centrelink thing that's really, really important and that's the five year rule. And the five year rule says that, and this lines up with deprivation as I mentioned before, the five year deprivation period that if when entering this agreement you are aware of a reason that this agreement could end within five years and that happens, they unwind the whole thing and go back. They adjust the pensions, they seek debt, they unwind it. Mom started to go downhill and she's got Alzheimer's or dementia. We are going to do a granny flat arrangement. She's going to move in with us.
(13:34):
Three years later she goes into care and we knew about it, they'll unwind it. Now I've got some stories later if we have time where I've managed to, we've able to evidence that we didn't know even though there was an age care event and things like that. Centrelink have really good look through provisions in knowing really what they're looking for is what is the truth, not what is trying to be sold. So if it's legitimate and real generally you're going to be all right, but you can see a few other reasons why that might happen. Things like family relationship breakdowns and just moms just moved in and we've just exacerbated everything, but we were actually on the edge already. Did we already know that? Has that unwound this entire arrangement? If we didn't know about it and it just happened to happen over those five years, then we're okay.
(14:12):
So there's a few reasons that they also say, well, you couldn't have possibly known about a sudden illness, elder abuse, of course, natural disasters, things like that. The key to this is that it's not just about the age pension. A lot of the time when I look at cases of granny flat arrangements and we're looking ahead, we're also talking about home care basically and age care, mom and dad are going to move in. The commitment is that we will care for them. So they only have to go into age care at this point if we cannot possibly do it. Usually that's like wiping bums and things where it's just dignity comes into it. But those aged care drivers can make substantial differences to how things are played out. I'm not going to get into how aged care fees work today, but if you have a house and a little bit of cash less than 200 grand and the house gets transferred as part of the grandfather arrangement, you've got less than $210,000. You become a low means entrant, you are paying substantially less. We're talking 50, 70, $80,000 less in care fees than you otherwise would be. So there can be some real long-term benefits if we didn't know about it already. Often when people come to me, they've already sold the house so it's too late.
Tara (15:18):
I mean, that's the big elephant in the room, isn't it? Nathan? Usually they've already got ahead and set up some kind of quasi arrangement and we are filling in the gaps and trying to fix what we can.
Nathan (15:32):
Correct. It's like anything the earlier that they can get in front of professional advice, even just as a, if you're going to do this watch out for everyone gets a 15 minute call. The earlier we do that, the more we can head off inquiry. Yesterday they were ready to sell the property like, well, it might not actually be the best option. But to that point, and this is a bit of a case study, an example of how it can work, but the stamp duty applied. I had a case where someone was coming in for aged care, looked at their current Centrelink situations and realised that it was wrong. And as I looked into it, I realised there was a graining flat in place. And so what we saw was the three brothers call 'em A, B, and C son. A had been taking money off Dad for years, about 450 grand Dad passed away, son B and stepson, which is son C, found out what had happened.
(16:20):
Spoke to mom and stepson or son C said to mom, Hey, give your house to Sun B. He's doing all the work he takes care of you, get it out of the estate. And it was all done above board, arms length transactions, the whole thing. The lawyers did an awesome job and that was it. But they never documented as a granny flat. She was out of pension anyway because of the assets test rules because the money that the sun had stolen was Canada's deprived and when you go from couple to single, the amount of money you have decreases, you're allowed to have decreases. So she lost the pension. So no really thought about it, come to aged care and we're looking at it and going, well, I said to him, I can't promise I can get this through, but that looks like a granny flat to me and I think I can try.
(16:59):
So I managed to demonstrate to Centrelink that it was a verbal granny flat arrangement. The lawyers had amazing file notes, so they were able to record on that. They completed a proper assessment at the time for capacity. We had records from the doctors of her health circumstances that were unrelated to the reason that she needed to go into care and because of the nature of the transfer, the son paid the stamp duty and she paid for an illegal fees, but some paid the stamp duty, she didn't give any more dollars. The value of the granny flat was $1.6 million or the value of the house and removed it from her pool and substantially improved her aged care fees. We're talking hundreds of thousands of dollars. That's an example of how it can work really well. But to your point, Tara, we are mopping that up. It would've been great if we did that right in the first instance. Yeah, it could have been a lot easier, a lot less stress.
Tara (17:48):
It sounds like an incredible outcome you were able to achieve for them.
Nathan (17:51):
It is probably one of the most intellectually validating things I've ever done. Let's talk about the ATO stuff. So the ATO have very specific definitions for what a granny flat is, and these don't line up perfectly with Centrelink because why would they? There's a good reason for this until 2021. Well, not a good reason for them not lining up, but a good reason for them to have good definitions until 2021 granny flats were broken. And so what would happen is when you establish one and put it in a contract, it would trigger what we call a D one capital gains event. So it says CGT there. This is not CGT on the sale of a house or anything like that. When the recipient of that money, that entry would we called an entry contribution, the transfer of the house, whatever it might be when they receive the asset, it would be immediately taxable, no discounts, no nothing.
(18:38):
Here's a $1.6 million house and the ATO goes, we need 45% of that. So no one wrote 'em down and there was a bunch of lobbying work. Michael did a lot of work on this as well at the time, and everyone said this is broken. It's a small thing, but it substantially impacts people and it's limiting our ability to help families long term with a pending housing crisis that we knew was coming in. I'm not going to go into that. So what they did is they changed the rules and they defined a series of things that you have to meet and if you meet them that is no longer a D one capital gains event. People get this really confused because the website's not super clear. They think, oh, it's the property mom lives in. Well that doesn't matter. It's the transfer of those assets that's immediately taxable.
(19:20):
And so you've got to make sure you meet the ATO definitions as well as the Centrelink definitions. The first one is it's in writing. The second one is that it's legally bound. The commercial in nature is really, really important and comes up in a lot of circumstances and they do actually deliberately state that contributions towards household expenses do not constitute a commercial arrangement unless you're profiting from it. It is not commercial. So obviously there's some grey in that and that's up for the tax lawyers out there to fight on. But if you're talking about contributing towards expenses and things, that doesn't count. They've got to be individuals and they've got to have things in the contract around circumstances where it can be terminated and varied and that kind of stuff. The last one, and this is the weird one, they've got to be either of age pension age or their definition is requiring assistance for dated activities because of disability.
(20:09):
They've got to be receiving the disability support pension. Those two definitions don't bode well for anyone between the ages of 62 and 67. And the reason is is that if you are below 67, you can't get the pension, but if you transfer the assets before that age, those assets will be deprived. So there's kind of this weird void in a really important time of someone's life where they're working out where they're going to live and their kids' going to have kids and everyone's trying to figure out what they're doing next and they're retire and we can't use it. So it's just worth flagging that it's a bit of a hole in the rules that have been put together, but it's important that we get this one right too. And for those of you who are going to do these agreements, you should be really good at this because you're going to make sure that it's in those agreements, this'll be on you guys legal aspects.
(20:54):
We're talking about the contract and agreement itself, the terms whether or not they can consent to it and whether or not they understand it. And capacity, talking about the estate implications, the family law implications, IE, that asset is now in the name of the younger children. What happens when they separate, if they separate the property Law implications, obviously the transactional component of that, which I've spelled out specifically and all of the other fun things around property law matters that my wife is a property law litigator that I live day to day. The planning law implications, if you're going to actually build that granny flat out of the back, can you do it, et cetera. Can you go a second story? All that fun stuff. And obviously elder law and elder abuse and all of that comes in as well. These are super involved. And a common factor in this that I'll allude to a bit later is when granny flats work really well for the right people, they are amazing, they are awesome and everyone else they're not right for, and people they're not right for are people who refuse to spend money on professional advice.
(21:49):
If you do one of these right, you're probably up for 10 to 15 grand in financial advice fees, five grand in agreement fees plus reviewing wills, plus depending on construction and planning. And you might spend 20, 30, $40,000 to do this, right? But you can't afford to do it right? You can't afford to fix it when it inevitably goes wrong. I have a more coloured version of that, but I'm not swearing. This might go to podcast and that's where the people who just won't spend money on this kind of stuff and start talking about, well, can we do this without that? They're the people where you've got, there's risk, there's risk in this. And $40,000 is very quickly overcome when you see the benefits, the financial benefits, the lifestyle benefits is a small price to pay. People spend $40,000 on a lot of things that are less valuable than professional advice, but I'm sure a lot of people are nodding at that comment in this field.
(22:38):
What do you include in the agreement? That's a big question and I can't answer it because I'm not a lawyer, but here's some things you could talk to clients about or encourage them to talk about. And as a lawyer, you'll have the professional ability to determine what should or should not be included in these contracts and agreements and what could be included as something we agree on separately or in principle versus something we contract. So there's a number of different things. I'll quickly run through things like are there advice requirements? You have to get legal financial advice, tax advice as part of the agreement. We want to make sure it's clean. Do we enforce planning financial agreements? If we're going to transfer the asset, we want a bunning financial agreement that ensures that it's protected in some way, shape or form as best we can do.
(23:21):
We disclose our financial positions. This all sounds great, but I didn't know you had $26,000 of credit card debt and you drop a thousand bucks a month in gambling. That's a big risk. Is that a something that needs to be a part of it? Do you require life insurance or other insurances? A case recently that if we have time, I'll talk about double granny flat arrangement. These two are taking on the financial responsibility or the accommodation responsibility of six people plus their child. Seven people require those two people to earn an income. So what do you do with that? How do you make sure that no matter what happens, it's fine if one of them passes away? Do you clear debts to make sure that the person who is left behind can support everyone and take care of everyone at that point in time? So those sorts of things could be included or just could be something you do as part of it.
(24:07):
Stamp duty implications and funding of that maintenance. Who pays for what, even if it's not contracted, it should be discussed and agreed on so that it's not up to question later. And I'm talking just about utilities, it's like what about maintenance and fixing things and renovating and doing the stumping and all that kind of fun stuff that happens with property, personal care? Why are we going into this in the first place? What are the long and short term expectations in the short term? We're okay when I start going downhill guys, the expectation is that you decrease your work days and take care of me. I'm not going into care. I've got a client I did one of these for, she's not going into care, but the financial position, the keys were enabled through this process meant they went and got advice separate. I work with the mom, they work with their financial advisor.
(24:53):
They had very little mortgage. They pumped that money into boosting other things so that if they needed to, one of them could quit their job to take care of mom because that was the agreement. But also what does that mean? Care? Does it mean being around and supervising? Does it mean transport? Does it mean prescription? Does it mean management? Does it mean financial management? Does it mean alluded to before bathing and toileting assistance and who does that? I had an inquiry once for someone who was looking at these and they were like, well, yeah, dad will move in and that means he's safe and secure because mom's passed away. He is not lonely. And I'm like, cool. Who takes care of dad? You work here? And he goes, yeah, and your wife, she takes care of our kids. So she taking care of your dad too?
(25:33):
Oh well no. Yeah, alright. Anyway, they ended up buying a house down the road instead. And dad moved into that different alternative better option. But this is the kind of stuff that everyone needs to be on the same page on dispute resolution. Everyone who does contracts, and this is like, yes, thank you for putting that in. How do we do this and what lines do we cross when we have to go external and how do we pay for that external? And then obviously we need departures from agreements and the ATO stuff and the right wording around things like that. So these are the things you could talk about. You can decide what's important for the agreement itself because all of that is great and it's all fun and I find it extremely exciting. I nerd out on the staff, but at the end of the day, the live reality drives all of this.
(26:14):
This actually makes sense. Can this actually work? And if so, how? And if it's not, then what? And what are the broader events, challenges, goals, things that can go wrong if we do this, what will go wrong and how do we handle it should be constantly discussed before signing it. And what are the limitations of that? Who's doing what? And to go back to my title, do they get along and maybe they do now, but what happens if they stop? Super important. The case I spoke about before where it was mom and dad moved in with the kids, dad needed a lot of support. He actually passed away within nine months unfortunately. But the fact that they'd set this up was brilliant. They'd lived together during COVID, so the kids that lived with mom and dad during COVID, they'd done this dance before they all got along, there was no other children involved.
(26:56):
It was a really perfect scenario and it's working really well. That is so crucial and we don't always get along with everyone all the time. You love your partner, but I'm sure you have disagreements and fights and things like that. And if you don't, you probably should start because otherwise you're not talking properly. I know some great divorce flows, but the key to that is how do we handle it? What are the boundaries? Can we communicate? How do we work through these things? Delivery reality is the most important thing in all of this. What are we actually trying to achieve here? And are we on the same page with that? And also is a granny flat the right thing? A granny flat ties in Centrelink or obligations, it ties in ATO obligations and then it ties in all the rest of it. What if we just gifted the house?
(27:34):
What if they're not even on slink? What if they've got more money than a self-funded? Just doesn't matter anymore. Now we're just talking about a private arrangement, which we could contract in this in a similar way, but the gifting is no longer an issue. We could also do things like family loan arrangements in the double granny flat arrangement. I spoke about when I give advice on this stuff, I give advice on what the options are to co relive. One of them is a granny flat. I don't give advice on whether or not they should do a granny flat. And this is I think a key distinction. We looked at a granny flat scenario for the parents and for grandma. We worked through the implications of them, we worked through the challenges, we worked through the differences in Centrelink, we worked through all that kind of stuff for both sets.
(28:11):
And it turned out that because of Nan's age and if she really needed to go into care, there was a line, we ended up doing that under a family loan arrangement, which still counted as an asset for her, but it meant that if she went into care, we could return the asset to help fund the rad because if it was a gift to give it back would actually cause a double up in assessment of those assets. So we worked through those options and that's where we landed. Similarly for the parents in that scenario, the ability to get the majority of their asset, which is the house out of their name, meant that in 10, 15, 20 years when they needed to go into care, they had no assets, substantially improved the age care fees. So it kind of lent itself to a granny flat, but we could also, we looked at things like co-ownership.
(28:52):
What if they just went on title instead? Maybe they really want control or want to know that if this doesn't go wrong, they've still got interest in their property, that they've got capital invested somewhere so that they're not in 10 years time trying to buy a house, but they've not been in the market and actually can't anymore. What other the downsizing options are there? We're talking about granite, we're talking about retirement villages, we're talking about smaller houses, that kind of stuff. And what about if you just bought the house guys and we rented from you, how would that work and could we do longer tenancy arrangements and that kind of fun stuff? I think we talk about co-living, and I've written this here, good advice is not about show us how a granny flat works. It can get an asset out of your estate. That's icky to me.
(29:28):
How do we solve the problem of family living arrangements and all the challenges we face as a family together and what different ways can we do it? And if we get fully informed of all our options, then we can give a proper informed consent to what we're doing. We know the reasons the other things aren't the best. I say to clients, I call it the uncle defence, a barbecue, and Uncle Barry comes over and says, you should do, Tara, you should get a supplemented super fund. We had one and it was a great idea. And you're like, yeah, thanks Baz, not for us, but appreciate it. But you've actually explored why it's not for you. That kind of, I don't dunno if you have one or not, TarATO tell me, but that's what we're looking for here. Improper informed advice, but it's also why it costs 10 to $15,000 and why I would refuse to do it on a more limited basis because then I'm not doing my job properly as I'm sure everyone here would be the same. And I think Tara, that's me. I did it in 40 minutes. Did I not tell you it was a 40 minute presentation?
Tara (30:25):
Yeah. Incredible. Nathan, from the estate planning perspective, these are immensely challenging and I love a formula I love, here's the rules and then this is what you do. And it is just incredibly difficult to apply that approach of thinking to the co-living arrangements because it truly depends on the objectives. Are we trying to take assets out of the estate so they're not in the challengable pool or are we actually inadvertently disinheriting beneficiaries and creating family provision application risks? Are these arrangements everyone's putting all their money on the line into this arrangement? Is it going to go the distance? What happens if the adult child goes through a relationship breakdown and there's a divorce and then suddenly the parents lost their certainty around their living arrangement? There's just so many issues that can come up that are unique to the facts and it is really challenging for us as estate planning lawyers. Nathan, I loved the questions that you had there in terms of what might go into an agreement and the kinds of conversation. I really think having some kind of terms sheet or even just a agenda for a family meeting to go through each and every one of those to sort of draw out how advanced everyone's thought process is on these is an amazing first start.
Nathan (32:01):
I agree. Shape up that conversation, start the conversation. How do we answer these questions? Then you can narrow it down to heads of agreement and what goes on top. But yeah, I agree. They're all so important.
Tara (32:11):
Oh, thanks Nathan. So I guess my main flag is I think a lot of people come in going, oh, this sounds like a great idea, but I think we can do an incredible service to them by even just stress testing the reality of it before we even get into the tax and the Centrelink. And I think you've well established the critical importance of professionals collaborating on this. And if you are, I'm talking to the estate planning lawyers who are here, the bulk of you. But yeah, if this comes across your desk and there's not a financial advisor involved, I think that's the first red flag. You've just got to get advisor involved to be able to work together to answer the whole puzzle.
Nathan (32:55):
And it's more than one too. So this is why it gets so expensive because what we're talking about is potential for conflicts of interest. So one of the challenges I have at the first instance is identifying who is the client, who am I actually working for here? Who's the most effective way for me to deliver the advice and the scenario? So sometimes I work with the older party, sometimes I with the younger party and I'll do calculations for the impacts so that they're aware of the impacts and they can pass them on, but that older party then needs to go and take that information and get advice. And the same on the legal agreement, you're going to sign an agreement. The agreement is only as good as the advice provided if you didn't understand it and you just was like, oh yeah, the estate planning part, they've got multiple parties that need to review their estate planning matters, the family law matters, these things all. You've got different angles and you actually do need to collaborate. And that is I think a burgeoning area of professional services and it's awesome and it's fun and it's great for outcomes. It gets a little expensive sometimes too.
Tara (33:56):
Yeah, I mean this is our constant challenge as professionals, isn't it? The upfront investment in advice is nothing compared to the transaction costs, the lost opportunity costs with social security, the actual tax past, the legal fees on an estate challenge on the other side if it's not done properly. But that is hard to put people to actually reach into their own pocket. Another thing that came to mind as a tip, I guess for an estate planning lawyer is the merits of having a family meeting once this is agreed as the way forward. I do think there can be a lot of value in, especially where there's multiple children in a family.
Nathan (34:42):
What's actually happening here? Yeah.
Tara (34:43):
Exactly. Because I think it can be so much misinformation or misconception from different sides about, oh, well I know this with friends we've got, they're like, oh, well mom and dad are moving into the granny flat, and so they've been able to help one child buy a really nice property in the heart of Melbourne and we are missing out. But then those children are not factoring in the everyday contribution of care and support and socialisation and that burden or obviously a privilege as well. But that is something that would've had to be outsourced and paid for if those children weren't providing that service. And I think unless you have open clear trends information about it, everyone's unhappy.
Nathan (35:32):
It's such a common, I see it in aged care advice a lot where the person who is taking care of a scenario comes in and they go, I want to get professional help. I want help. I want support. And yes, what you do is exactly what I need to do, but they're the one that's dealing with the facility that's driving around that's been picking mom up from appointments and putting their own career on hold and not be able to go on the holiday house's not great right now. So we actually had to cancel that trip for my 50th or my 60th and the sibling in another state or whatever is like, oh no, don't waste mom's money on advice. You can just do it. Yeah, it's not that hard.
(36:04):
They've never contributed to any of it, and this often the weight of that can be really, you also don't want to be like, well, I do everything. And there's a very amusing Aunt Donna skit on this that I'll send you afterwards, Tara, where they're just all of a sudden break into a family discussion about someone's health and it is scarily good at, given it's a comedy skit at how good a job it is of the dynamics that's so common, but you're right. How do you navigate that without having everyone in the room? Does everyone actually understand both the implications but also the language, oh, we're able to help out Joanne and do this and that's what the other child is and where's my help? That kind of stuff. It becomes really, really challenging.
Tara (36:45):
I do think that, and I really liked your point, Nathan, that you said about exploring the non-technical granny flat arrangements. I think once we have got a transfer of ownership of property from one party to another or joint ownership, it really dials up the complication factor in an estate planning context. So if you can look at other things like a rental arrangement or licence fee or a low rent free rent arrangement or something like that, or just something that doesn't involve going all in and ruling that out before looking at the property transfer for the granny flat or co-living, I really think that is worth exhausting because it just ties our hands when it comes to doing the estate plan. And so I would almost say when everyone's going into this, it almost makes sense to be doing some kind of estate planning strategy concurrently to even if it's just kind of diagramming it out and obviously not documenting it, but just saying, what is the estate planning going to look like with this strategy?
(37:56):
Because the reality is a lot of the time these arrangements are needed because there's not enough money. If there was enough money around for everything and money was no object, then usually that's greases all the problems and goes away. So there's just not usually enough money to go around, which is why they're looking at these kinds of arrangements. And then it ties our hands from an estate planning strategy point of view, especially when our, I dunno what the technical term is, but the person who is, that the living arrangement is required for has put all their assets into the property. They're too old to get affordable life insurance, how there's not enough money to go around to meet the needs. So it just really makes it challenging, and I think for the financial advisors and accountants who might be giving advice on it, you're bringing in the estate planning lawyer early can also add some merit. Maybe not even just to do the full exercise, but just to say, well, this is what it would look like, or here's the estate planning challenges. Too.
Nathan (38:56):
Hundred percent agree on that. If you're talking about scenarios where they've got an asset rich home and they're transferring that title and now there's 30 grand in the bank and there's no other assets, people get weird. People get weird. So often these work when there's only one child, I find that very common, and you just start diverting away from that. That's when you get problems and it's like single child simplifies this a lot, but obviously there's other beneficiaries that could be in play anyway. But yeah, isn't that fun though, Tara? I find this, it's like the perfect interception of everything I do. Maybe why I enjoy, it's like the Venn diagram. It's right in the middle, but yeah, nothing is standard and it's exciting, but also it becomes really challenging.
Tara (39:39):
It honestly seems to be one of the most complex areas in the intergenerational wealth transfer space.
(39:49):
Just cuts across all these areas. I think for me, the main takeout has really been the investing, the time in the upfront planning. If you can get involved at that point and really stress testing it, you go into it with the best of intentions, but there's so many contingencies we just either literally can't anticipate for health or relationship breakdowns or pandemics or whatever, or it's literally just, it really if anything's going to shine a light on cracks in a relationship dynamic. So yeah, it's a really challenging area. So I'm sorry we don't have, here's the exact formula or the exact precedent that you need to use, but I just think that's actually an impossible task in this area. It's coming back to digging deep in our, what we know within our expertise, our practical experience, and just really opening up those collaborative conversations as well.
Nathan (40:51):
Yeah, a hundred percent. It's interesting you said then around the realities too. You look at the estate plan and the intentions, and for the younger parties the same thing. We were planning on paying off a house. We wanted to move up the chorus, we wanted to do this. It's like when people go guarantor on properties for kids, but don't think about five years ahead, they're actually planning on downsizing, et cetera, et cetera. That's the reality of the life. Are you willing to give that up and then that can create a resentment that exacerbates those issues when you're living next to people that you didn't choose to marry the parents, but they're in your kitchen right now every day. So yeah, it's very interesting.
Tara (41:27):
Nathan, do you want to do a little plug just about how people can work with you? I think it's really important that you share this just because from a lawyer's perspective, when we see clients who don't have a financial advisor and they need financial advice, it can feel like getting them into a financial advisor is very large undertaking with statements of advice and ongoing. A lot of advisors want to work on an ongoing annual family office type arrangement. So you work a little bit differently than that, don't you?
Nathan (41:59):
Yeah, yeah. I'll do the quick plug. So you talk about family meetings. One really common first step I do with these arrangements is I do a one-off appointment where I explain it, so it's kind of like what we went through today, but a lot dialled up, further dialled down, and it's an hour meeting. I charge $990 for it, and I get everyone in the room and I walk through, this is what a granny flat is, this is what co-ownership is, these are the key considerations and these are the key people you need to be aware of and this is the kind of outlay you'd be expecting if you wanted this to work. And I find that's really good one. People value it because they're getting something, they spend money though, so it's not free. Two, it filters out people that it's not right for, but you can very quickly ascertain who it's right for.
(42:39):
So these scenarios come up. That's usually my first point of call is family meetings. I can very quickly ascertain if we've got everyone on board or not and whether or not I want to do this work ethically as well. But that's that one. The other option I suppose, is if you've got a case that's coming along, I do offer 15 minute calls, which are only 15 minutes I try. So you can either get in touch with me on the website, send me an email if people want my email address, I'll send it separately or get the client to reach out on my website and I'm more than happy to chat with 'em about that. We've also got the Weaving Gold podcast, which myself and an advisor named Jordan VA could do. That's all on some estate stuff. Granny Flats, retirement Aged care, 20 minute episodes.
(43:16):
There are specific apps that you can just send your clients. Here's an EEP on Granny Flats, and it was like a 20 minute version of what we went through mainly focusing on will it work for you, not the rules and Retire, right, which is the studio I'm in at the moment is a huge retirement podcast that I regular guest on, and we've done a number of episodes on this stuff as well. So there's resources there that I think the power of those is you can say, I think you need financial advice. Here is some resources from reputable financial advisors that you can start with, and even Nan can listen to a 20 minute podcast. Then everyone starts there. Then we're not just starting from scratch and it's not a big scare. The kind of work I do generally is going, I either do one-off work or I do work where I'm working with someone now and then in 12 months and then in 12 months and then in 12 months where we are going through a problem that takes more than a year to do.
(44:04):
But my model is not an accumulating retainers or taking a percentage of assets or that kind of model. It's not what I do. My advice is very advice orientated. It's probably a lot more akin to what you guys do more than say the sale of superannuation products or investment products and stuff. People do that awesome. They're good at it. It's not what I do. My fees do tend to be a bit higher, but I'm happy to talk to people, give resources, and then the people who value advice and who will do who we want to work with, they will value it as well.
