What is a Qualified Personal Residence Trust?
This is an irrevocable trust into which a personal residence is transferred. The individual or couple who created the trust retains the right to use the property for the term of the trust. This is a tax planning technique to remove the asset from the estate of the individual making the trust. If the grantor survives the term of the trust, then the asset is not part of the estate.
A “qualified personal residence trust” or “QPRT” is a special type of grantor trust specifically authorized by the Internal Revenue Code. The trust is created by an individual (the “grantor”), and funded with with a “qualified residence.” The grantor retains the right to use the residence for a term of years (or possibly for the grantor’s life). In order to qualify as a QPRT under current tax laws, the trust must be irrevocable. When the trust ends, the assets pass to someone other than the grantor – usually the grantor’s family members (i.e., his or her heirs). Qualified Residences What can you put in a QPRT? According to the Treasury Department regulations, a principal residence and one other residence (including a vacation home) can each qualify as a “personal residence.” Thus, every grantor has the ability to create a maximum of two QPRTs. Married couples who share the same principal residence may create three QPRTs without violating this rule, one to hold the shared principal resi
A qualified personal residence trust (QPRT) places a residence in a trust either for the benefit of one’s spouse and children or for a charity. This type of trust was created and passed by the US Congress in 1990, when concerns arose about inheritors of a house having to sell gifted property because they couldn’t pay the taxes when ownership was transferred to them. A qualified personal residence trust can apply to a primary or secondary residence and can significantly decrease taxes at the time that the residence is inherited. The trust is created and controlled by the homeowner-grantor but the title to the residence is transferred to the QPRT. This transfer involves an agreement about how long the owner may continue to reside in the house even though the residence has been transferred to the trust. The grantor-trustee may continue to reside at the residence for a term of years specified in the qualified personal residence trust. During the grantor’s stay he or she is not required to
A QPRT is an irrevocable trust created by the Grantor (yourself) for your own benefit. The Grantor transfers a primary or secondary residence into the trust and retains the continued right to use the residence for the term of the trust. You, as Grantor, select a term of years that the trust will exist. After the trust ends, the residence will pass to the named trust beneficiaries. How is a QPRT established? A formal appraisal should be obtained to substantiate the value of the residence on the date of transfer to the trust. The Grantor makes a taxable gift to the trust. The taxable gift is the fair market value of the transferred residence reduced by the value of the interests retained by the grantor. Because the remainder is a future interest, it will not qualify for the $10,000 annual exclusion. The taxable gift will be determined by using the actuarial tables in IRS Publication 1457 to value the remainder, taking into account the two values retained by the grantor, i.e. (i) the righ
