What is a qualified personal residence Trust (QPRT)?

What is a qualified personal residence Trust (QPRT)?

A Qualified Personal Residence Trust, or QPRT for short, is a special type of irrevocable trust that is designed to hold and own your primary or secondary residence and remove its value from your taxable estate.

What is a QPRT and how does it work?

As an irrevocable trust, it’s is a type of estate plan in which the terms and beneficiaries cannot be changed once the document is created. A QPRT allows the removal of a home from the estate and will reduce the gift-tax burden on the grantor of the property. As with all products, a QPRT comes with its own benefits and risks.

When does a grantor establish a QPRT?

A grantor establishes a QPRT when an irrevocable transfer of a personal residence is made to the trust for a fixed period. This term could be for any period but will usually be 5-20 years. During this period, the grantor will retain the right to live in the property as a personal residence. The use is unrestricted.

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.

In today’s real estate market, a popular estate planning technique is to reduce the size of an estate by transferring a residence to a qualified personal residence trust (QPRT).

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 is the difference between a QPRT and a GRAT?

A GRAT provides for the payment of an annuity for a fixed term with the balance passing to the remainder beneficiaries at the end of the term. A QPRT also will convert to a GRAT if the residence is sold while it is in the QPRT and the sales proceeds are not reinvested in a new residence.

How is the taxable portion of a QPRT calculated?

The Summary Tab displays the taxable portion of a QPRT. To calculate this value, the calculation determines the value of the interest retained by the grantor (income interest plus reversion). It then subtracts the value of the grantor’s retained interest from the principal placed into the trust. The result is the taxable portion of the QPRT.

Reviewed by Julia Kagan. Updated Sep 11, 2019. A Qualified Personal Residence Trust (QPRT) is a specific type of irrevocable trust that allows its creator to remove a personal home from his or her estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.

What does QPRT stand for in real estate?

DEFINITION of ‘Qualified Personal Residence Trust (QPRT) ‘. Because the owner retains a fraction of the value, the gift value of the property is lower than its fair market value, thus lowering its incurred gift tax. This tax can also be lowered with a unified credit.

How does a QPRT affect the value of a residence?

If structured properly, the QPRT will freeze the value of the taxpayer’s residence at the time he or she creates the trust and result in significant estate tax savings. The federal interest rate under IRC section 7520 is one of the main factors that drive the favorable tax outcome of valuing the gift of a residence.

What happens when the QPRT term of a trust expires?

The grantor has a predetermined limit on the right to occupy the residence placed in trust and must relinquish ownership at the expiration of the QPRT term. If the residence transferred to the trust is subject to a mortgage, there may be some complexity in accounting for the monthly mortgage payments and minimizing the income tax consequences.