Qualified Personal Residence Trust

by | Jul 12, 2022 | Estate Planning

The Qualified Personal Residence Trust (QPRT) is designed to hold title to the client’s principal residence or vacation home, whereby the client gives the property away to his children, but retains the right to use the property for a specified length of time. The idea behind it is to maximize the amount of gifts the client can make while reducing the size of the estate thereby reducing the estate tax liability. The value of the gift is reduced by the value of the client’s retained interest. The decision to use a qualified personal residence trust requires a balancing of the tax benefits and the potential loss of control that comes with placing the property in trust. Since this trust is irrevocable, its implementation should not be taken lightly. Each QPRT would be established for an initial term of years that is somewhat shorter than the client’s life expectancy, since the trust will provide the intended tax benefits only if the client outlives the term. During this initial term, the client would be the sole beneficiary of the trust, which would entitle the client to continue residing in the house. At the end of the initial term, the client’s interest in the trust ends, and the stated beneficiaries now benefit from the trust. The client can however remain as trustee and be allowed to rent the house from the trust for a fair market rent. This rent could be used to pay the expenses of maintaining the house. If the house were later sold, the proceeds would be paid to the beneficiaries of the trust.

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