Qualified Personal Residence Trust (QPRT)

 

A Qualified Personal Residence Trust, (QPRT) is a Grantor trust which permits the transfer a grantor’s personal residence out of the grantor’s estate at a lower gift tax value. Once the QPRT is funded with the Grantor’s residence, the QPRT removes the, the residence and any future appreciation on the value on the real estate from the grantor’s estate, provided the grantor survives the term of the QPRT. In addition, the Grantor can claim an income tax deduction for any real estate taxes that they pay on real estate contributed to the trust. The ability to freeze the value of the Grantors residence at the time he or she creates the trust and result in significant estate tax savings. Its important to point out that the QPRT must have a predetermined time limit on the right of the Grantor to occupy the personal residence which is placed into the trust. In addition, in order for the QPRT to be effective the Grantor must surrender ownership of the property at the conclusion of the QPRT’s term.

How To Set Up A QPRT

First. Transfer of property to a QPRT. The grantor creates a QPRT for a period of time set out in the trust and designates beneficiaries, usually family members the grantor wishes to benefit under their estate. Next the grantor should contribute their personal residence to the trust. This transfer of the grantor’s personal residence accomplishes to goals, one, it remove the residence from the grantor’s estate and two, it creates a taxable gift to the beneficiaries of the QPRT. Once transferred to the QPRT, the  fair market value of the grantor’s residence is discounted for gift tax purposes. It is important to note that the gift to the beneficiaries does not qualify for the annual gift tax exclusion since the transfer of a residence to a QPRT is not a gift of a present interest.

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