Property transfer from relative

I'd like to use my Grandma's property as security to acquire other real estate. Due to her age, no bank will allow this to happen. She is leaving the property to me in her will, and has offered to transfer the property into my name now, however this will be classed as a gift and will eliminate her pension for five years (property is worth approx $350k). I will have to pay stamp duty, and am happy to do so.

I could also "purchase" the property for a sum of $350k, with the vendor (Grandma) "lending" me the money. The deemed interest rate on the loan will mean her pension is cut by $2300 a year, which I'm happy to fund. This "loan" may also affect her ability to get into aged care if and when the time comes?

On the Centrelink website, they mention a Granny Flat Interest that doesn't affect pensions. However, when I spoke to Titles Office, they said a Granny Flat Interest does not constitute valid consideration for a transfer. Argh! (Granny flat right or interest - Australian Government Department of Human Services)

Any other possible solutions?

 

Did you ask the bank directly? If so, I would speak to a broker about options. There's a good chance the above statement is false.

I don't think this is a good idea. Who will cover her pension or living expenses for the 5yrs that disqualifies her for the pension? That alone could run into 6figures.

In addition to the reduction in pension due to interest from the amount borrowed, you may also need to look at how the asset tests limits. As she has sold the property to you my understanding is it would add 350k to her assets and affect the amount/eligibility for pension she would receive.

 

@Peter_Tersteeg

 

Speak to a broker such as Peter because you should be able to get this done via a family pledge loan - ANZ may be a good choice.

If you cannot then you should seek legal advice. I have just seen a client who did something similar already and shot himself in the foot by the way it was done.

There are many issues to consider, one of which is deductibility of interest. This is important because you could be losing considerable tax deductions each year for the next 30 years or so depending how you could do it.

And it could be possible for your grandmother to transfer property to you and to not lose her pension because of the 'granny flat' rules. You are not looking at it from the right angle.

 

Incidently you should each get separate legal advice. You should make sure your grandmother actually does to protect yourself because if things go wrong you will possibly be sued - by your grandmother, her attorney, or executor or other's who missed out under her estate.

Any lawyer is going to have to advise her not to gift you the property as it is not in her interests. But if she decides to go ahead anyway they can advise on all the potential legal implications.

 

Rather than get into the complexities and implications of the grandmothers pension, a family pledge loan is probably a lot simpler. Grandmother keeps the property until you inherit it from her estate. As far as I can tell, it's status quo on her pension and other benefits. Proper advice from a financial planner would be required to determine if this is a better or worse outcome for her however.

The catch is you'd really only be able to buy one house using this method, but it is a start.

The catch for the grandmather is if you don't make the repayments, it will eventually come back to her, but realistically the same or lower than if she gifts the house with the expectation of still living there.

And the grandmother will definitely require legal advice regardless of which path chosen.

Frankly though, I don't think I'd be comfortable encouraging someone to simply 'gift' their home to somebody else, regardless of the relationship. There's simply too many things that can go wrong. Even with the best of intentions or even legal advice, a retiree getting into financial trouble simply looks bad for everyone involved.

 

agreeD @Peter_Tersteeg .

even if you ignore/avoid anything malicious happening or an external party suing or whatever, there's always a risk @WarrenBuffett might run into financial trouble and his grandmother ends up homeless.

I wouldn't feel comfortable doing that.