A Qualified Personal Residence Trust is a tax planning tool that allows a person to transfer his or her personal residence to an irrevocable trust that will terminate in a certain number of years and when that term ends, the beneficiary or beneficiaries receive the property outright. During the term of years, the grantor essentially has a life estate in the property. Following the beneficiary’s receipt of the property at the end of the term, the grantor can remain living in the property, but must pay fair market value rent to do so. This could be a benefit as a way to further spend down a person’s estate if they are close to the lifetime gifting limits and may potentially be subject to estate tax. Upon the drafting and funding of the Trust, the gift tax is calculated based on a current appraisal of the property, minus the life estate or retained interest by the grantor. This can be an excellent way for estate tax savings because it allows you to gift a property while shielding its appreciation from tax and leave it out of your estate upon death.
QPRTs have very specific terms and provisions that must be included to make them valid and to take advantage of the excellent tax benefits the trust offers. Our office can draft and fund a QPRT so that it meets with those requirements and your estate planning needs.
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