Qualified Personal Residence Trusts (QPRTs)
QUALIFIED PERSONAL RESIDENCE TRUSTS (QPRTS) EXPLAINED BY OUR TRUST ATTORNEYS
When preparing your estate plan in Florida, you have no shortage of estate planning tools at your disposal. In addition to general estate planning tools, such as wills and revocable living trusts, that can be used for a broad range of purposes, there are also many special-purpose tools that provide specific benefits under specific circumstances. One of these tools is the Qualified Personal Residence Trust (“QPRT”). If you own your home, creating a QPRT as part of your estate plan can potentially result in significant tax savings for both you and your estate. At Ellis Law Group, our Boca Raton estate planning attorneys routinely advise clients regarding the use of QPRTs and other less-common types of estate planning tools. If a QPRT is right for you, we can prepare a document that integrates with the other tools used to build your estate plan, and we can ensure that your QPRT achieves the maximum tax savings available under state and federal law.
WHAT IS A QUALIFIED PERSONAL RESIDENCE TRUST (“QPRT”)?
Essentially, a Qualified Personal Residence Trust is an irrevocable trust that is funded by the transfer of a personal residence. When you establish a QPRT, the trust’s governing documents appoint a trustee to manage the property on your behalf, and you retain the right to reside in the residence for a term of years.
At the end of the term stated in the QPRT, the value of the residence is outside of your estate and you no longer personally own the residence. Instead, your home is now owned by the trust. This keeps your home out of probate, which can result in significant savings while also streamlining the process of transferring ownership of the home after your death. If you desire to continue living in the residence after the stated term expires, you can enter into a lease agreement with the QPRT and continue living in the residence while paying rent to the trust.
BENEFITS OF USING A QPRT
Under the right circumstances, using a QPRT can offer a number of benefits. The main benefit of creating a QPRT is that it can produce significant estate and gift tax savings while also retaining certain income tax benefits. The initial transfer of the personal residence to the irrevocable trust is considered a completed gift for gift tax purposes. However, the value of the home is computed under the actuarial tables promulgated by the IRS, and this means that its value will fluctuate with interest rates on a monthly basis. As a result, the value of the home (for gift tax purposes) is not the entire value of the property transferred, but instead the fair market value of the residence at the time of the transfer minus the value (as calculated under the tables) of the grantor’s retained right to use the residence for the term of years chosen. This allows the value of the residence to be removed from the grantor’s taxable estate at a reduced value while also effectively eliminating all future appreciation of the residence for the QPRT.
Placing your home into a QPRT can also serve an asset protection role; and, as mentioned above, it keeps your home out of probate. Subject to the limitations discussed below, if these are pertinent considerations for you (as they are for most people, and high-net-worth individuals in particular), then incorporating a QPRT into your estate plan may be a desirable option.
OUR TRUST ATTORNEYS EXPLAIN THE LIMITATIONS OF USING A QPRT
In general, the benefits that come with special-purpose estate planning tools also come with certain limitations. This is true of QPRTs, although the limitations of QPRTs often are not significant enough to outweigh the significant tax savings that can be achieved. The two main limitations of QPRTs are:
- A QPRT is an irrevocable trust. QPRTs are a form of irrevocable trust, and this means that you generally cannot pull your home back out of a QPRT once you have used the home to fund the trust. However, there are a number of ways to modify irrevocable trusts, and it is important to keep these options in mind when evaluating whether it makes sense for you to establish a QPRT.
- There is an administrative component to managing a QPRT. When you establish a QPRT, there are certain administrative aspects involved. While these aspects cannot be overlooked, they are relatively minor in the context of the benefits that can be achieved, and our trust attorneys can largely handle them on your behalf.
CONTACT ELLIS LAW GROUP IN BOCA RATON, FL FOR ALL YOUR ESTATE PLANNING NEEDS
If you would like more information about possibly incorporating a QPRT into your estate plan, please contact us to arrange a confidential initial consultation. To speak with a Boca Raton trust attorney at a time that is convenient for you, please call 561-910-7500 or inquire online today.