What is a Qualified Personal Residence Trust?

If you’re like most people, you haven’t heard of qualified personal residence trusts.  They are abbreviated “QPRT” for short; and, pronounced “Q – Pert.”

They are irrevocable (can’t change them) split interest (you benefit and your children benefit) trusts.  You benefit by living in your home rent free for a period of years.  Your children benefit because federal estate taxes are eliminated and they get the house.

QPRTs have a role in California planning where the high value of real estate can put families within the reach of the federal estate tax.  A qualified personal residence trust is used to get the value of your homes (up to 2) and its appreciation over your lifetime out of your estate for estate tax purposes.

It might surprise you that QPRTs are so widely used when the lifetime exemption for federal estate tax is now over $11,000,000.  But that means that this may be a good time to use QPRTs and other gifting tools.

For the first time, ever, you can give away over $11,000,000 in during your lifetime.  If you’re married, you and your spouse can give away over $22,000,000 together.

(But remember, unless new tax legislation is passed by Congress, this exemption reverts back to lower levels no later than 2026 so act now if you want to get your own QPRTs in place.)

Only the value of the discounted future remainder interest is valued when you transfer your homes into the trust.  So, with such a large exemption, you can leverage your gifts and avoid millions of dollars of federal estate tax.

Your estate planning attorney or CPA will do all the number work for you.  No worries.

The value of your personal residences is out of your estate.

And, the future growth is out of your estate.

Some people are concerned that they may someday be renting their own home from their children.  If this is concerning to you, you can name a friendly professional to serve as trustee of the qualified personal residence trusts and/or you can work out a mandatory (at your discretion) rental agreement now.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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