What Is a Qualified Personal Residence Trust (QPRT)
A Qualified Personal Residence Trust (QPRT) is an irrevocable trust that can be used to transfer ownership of a personal residence to a family member or other beneficiary while retaining the use of the property for a set period.
The grantor, or person creating the trust, can continue to live in the home for the trust term, after which the home passes to the beneficiary outright.
The main advantage of a QPRT is that it can help to reduce the value of the grantor's estate for estate tax purposes.
How Does a QPRT Work
To create a QPRT, the grantor first transfers ownership of the personal residence to the trust.
The grantor can then continue to live in the home for the trust term, typically 10 to 15 years.
At the end of the trust's term, property ownership passes to the beneficiary outright.
If the grantor dies before the end of the trust's term, the property's value will be included in their estate for estate tax purposes.
What Are the Benefits of a QPRT
There are several benefits of using a QPRT, including:
- Reducing the value of the grantor's estate for estate tax purposes.
- Avoiding capital gains taxes on the sale of the property.
- Passing ownership of the property to the beneficiary at a reduced value.
- Allowing the grantor to retain use of the property for a set period.
Risks Associated With QPRTs
There are some risks associated with QPRTs, including:
- The possibility that the grantor will outlive the trust's term.
- The property's value may increase during the trust's period.
- The beneficiary may be unable to afford the property's taxes and upkeep.
When Should You Create a QPRT
Consider creating a QPRT if you are looking for ways to reduce the value of your estate for estate tax purposes and avoid capital gains taxes on the sale of your home.
You should speak with an experienced estate planning attorney to determine whether a QPRT is right for you.
How Do You Create a QPRT
To create a QPRT, you must transfer ownership of your residence to the trust.
You will also need to name a trustee and beneficiary and establish the trust's terms.
The trustee will be responsible for managing the property and ensuring that the terms of the trust are met.
The beneficiary will receive property ownership at the end of the trust's term.
What Happens if You Die Before the End of the Trust’s Term
If you die before the end of the trust's term, the property's value will be included in your estate for estate tax purposes.
Your beneficiaries will still receive property ownership at the end of the trust's term, but they may have to pay estate taxes.
Multiple QPRTs
You can create multiple QPRTs, each with its terms.
For example, you could create a QPRT for your primary residence and another for your vacation home.
You could also create a QPRT for each of your children, with the terms of each trust tailored to the particular child's needs.
QPRT and Other Trust Forms
Like other trust forms, QPRTs can be either revocable or irrevocable.
Revocable trusts can be changed or terminated at anytime, while irrevocable trusts cannot.
QPRTs are typically irrevocable and designed to remove the property from the grantor's estate.
There are many different types of trusts, each with its purpose.
Some common trust forms include:
Irrevocable Life Insurance Trusts (ILITs)
They are used to hold life insurance policies and can be used to pay estate taxes.
Charitable Remainder Trusts (CRTs)
These are used to benefit a charity and can provide income for the grantor during their lifetime.
Irrevocable Trusts
Irrevocable trusts are permanent and cannot be changed or revoked.
Revocable Trusts
Revocable trusts can be changed or revoked by the grantor at any time.
Grantor Retained Annuity Trusts (GRATs)
GRATs transfer assets to beneficiaries while minimizing gift and estate taxes.
Each trust serves a different purpose, so you should speak with an attorney to determine which type of trust is right for you.
The Bottom Line
A qualified personal residence trust (QPRT) is a trust that is used to transfer ownership of a personal residence to a beneficiary.
QPRTs are typically irrevocable and can be used to reduce the value of the grantor's estate for estate tax purposes and avoid capital gains taxes on the sale of the property.
QPRTs can be complex, so you should speak with an experienced estate planning attorney to determine whether a QPRT is right for you.
FAQs
1. What is a qualified personal residence trust?
A QPRT is an irrevocable trust used to transfer ownership of a personal residence to a beneficiary.
2. How is a QPRT created?
To create a QPRT, you must transfer ownership of your residence to the trust. You will also need to name a trustee and beneficiary and establish the trust's terms.
3. What happens if you die before the end of the trust's term?
If you die before the end of the trust's term, the property's value will be included in your estate for estate tax purposes. Your beneficiaries will still receive property ownership at the end of the trust's term, but they may have to pay estate taxes.
4. Can you create multiple QPRTs?
Yes, you can create multiple QPRTs, each with its terms. For example, you could create a QPRT for your primary residence and another for your vacation home.
5. What is the difference between an irrevocable trust and a revocable trust?
An irrevocable trust is permanent and cannot be changed or revoked. A revocable trust can be changed or revoked by the grantor at any time.
