Lake front house

Qualified Personal Residence Trusts

Your home may be your most valuable asset and hence one of the largest components of our taxable estate. A Qualified Personal Residence Trust or a QPRT allows you to give away your house or vacation home to your related beneficiaries (i.e., children) at a great discount, freeze its value for estate tax purposes, and still continue to live in it.

Here is how it works: You transfer the title to your house to the QPRT reserving the right to live in the house for a specified number of years. This is a gift by you to your children, but at a valuation significantly less than the property’s fair market value.

If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes. After the end of the specified period, you may continue to live in the home but you must pay rent to your children in order to avoid inclusion of the residence in your estate. This may be an added benefit as it serves to further reduce the value of your taxable estate, though the rent income does have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate as if the QPRT never happened (i.e., you are no worse off than you would have been had you not established a QPRT). An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the trust is established and your residence is transferred to the QPRT.