Qualified Personal Residence Trusts (QPRTs) are estate planning tools that allow individuals to transfer their primary residence or a vacation home into a trust while retaining the right to live in the property for a specified number of years.
The key benefit of a QPRT is that it helps reduce the value of the estate for tax purposes, potentially lowering estate taxes upon the owner’s death. The value of the gift to the trust is determined by the present value of the future interest in the home, which can be significantly less than the market value, depending on the length of the term for which the grantor retains use of the property.
For example, if an individual transfers a home valued at $1 million into a QPRT and retains the right to live there for 10 years, the value of the gift to the beneficiaries is calculated using IRS tables that take into account the grantor’s life expectancy and the term of the trust. After the term expires, the beneficiaries take ownership of the property without incurring additional gift taxes.
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