Qualified Personal Residence Trust (QPRT)
A Qualified Personal Residence Trust (QPRT) is an estate planning tool that allows an individual to transfer a personal residence into a trust while retaining the right to live in the home for a specified number of years.
The primary purpose of a QPRT is to reduce the taxable value of the estate for gift and estate tax purposes. When the homeowner transfers the residence into the QPRT, they gift the future interest in the property to the beneficiaries, typically family members. The value of this gift is calculated based on the present value of the home minus the retained interest, which is determined by the length of time the homeowner retains the right to live in the home.
For example, if a homeowner places a house valued at $1 million into a QPRT and retains the right to live there for 10 years, the gift value reported for tax purposes may be significantly lower than the current market value, depending on the applicable IRS interest rates and the homeowner’s life expectancy. After the specified term ends, the property transfers to the beneficiaries, and the homeowner must vacate the residence. If the homeowner dies before the term ends, the full value of the home may be included in their estate, negating the tax benefits of the QPRT.
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