Qualified Personal Residence Trusts (QPRTs)
Essentially, a Qualified Personal Residence Trust (“QPRT”) is an irrevocable trust funded by the transfer of a personal residence to a trustee while you retain the right to reside in the residence for a term of years.
At the end of the term stated in the trust, the value of the residence is outside of your estate and you no longer own the residence, however the trust does. If you desire to continue to live in the residence you may enter into a lease with the trust and continue to live in the residence subject to paying rent.
Benefit of using a QPRT
The main benefit of creating a QPRT is that achieving significant estate and gift tax savings, while retaining certain income tax benefits. The initial transfer of the personal residence to the irrevocable trust is a completed gift for gift tax purposes. The value of such gift, however, is computed under the actuarial tables promulgated by the IRS; these values fluctuate with interest rates on a monthly basis. Thus, the value of the gift (for gift tax purposes) is not the entire value of the property transferred, but the fair market value of the residence at the time of the transfer minus the value (as calculated under the tables) of the client’s retained right to use the residence for the term of years chosen. Therefore, the value of the residence may be removed from your taxable estate at a reduced value as well as removing all future appreciation of the residence.