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Is a QPRT a grantor trust after the initial trust term?
During the initial trust term, a QPRT is a grantor trust under Sec. 677(a) as to the income portion and possibly also Sec. 673(a) for the remainder of the trust, but whether the QPRT remains a grantor trust after the initial trust term depends upon the language in the trust agreement.
What are the consequences of a non-grantor QPRT?
First, with the non-grantor trust, expect these consequences: • The QPRT will be a tax-paying entity and require its own tax ID number. If there are separate trusts created under the “umbrella” QPRT, each trust will be a separate taxpayer and require its own tax ID number.
How do I transfer ownership of a QPRT?
When the retained income period ends, the trustee of the QPRT must transfer ownership of the residence from the name of the trust into the names of your ultimate trust beneficiaries. This is done by recording a new deed from the name of the trust into the names of the trust beneficiaries in the land records where the property is located.
How to set up a QPRT for tax purposes?
How to Set Up a QPRT. 1 Write the Irrevocable Trust Agreement. The first step in establishing a QPRT is writing the irrevocable trust agreement. You’ll need to decide who 2 Fund the Trust With Your Residence. 3 Obtain an Appraisal of Your Residence for Gift Tax Purposes. 4 Report Your Gift to the IRS.
What happens if the grantor of a QPRT outlives the term?
If the grantor outlives the term of the trust, the residence passes to the beneficiaries at the end of the term. Step 5. Rental of residence. At the end of the QPRT term, the grantor can lease the residence back from the beneficiaries at fair market rent, thereby allowing the grantor to continue living in the house.
What are the tax implications of a QPRT for a client?
Advisers considering establishing a QPRT for a client should plan ahead and consider the income tax implications of the trust after the initialterm. For trusts that are not grantor trusts (or in the case of payments directly to beneficiaries), the rental payments made by the QPRT donor would be taxable rental income to the trust or beneficiaries.
What happens to a QPRT if the property is no longer used?
If the property ceases to be used as a personal residence, the trust ceases to be a QPRT and the trustee must distribute the assets outright to the grantor or convert the QPRT to a grantor retained annuity trust (GRAT).