In an estate planning context the acronym QPRT stands for a qualified personal residence trust. These instruments can be utilized to reduce the taxable value of your home as you are transferring it to a beneficiary.
When you consider the fact that your home is in fact considered to be part of your estate by the Internal Revenue Service, a lot of people will be exposed to the estate tax in 2013 when the exclusion goes down to just $1 million. If your home is worth half of this or perhaps more you are already a long way toward exceeding this threshold.
By placing the home into a qualified personal residence trust you are extracting it from your estate for estate tax purposes. You may wonder where you will live but this is not an issue. With these trusts you decide on a term during which you remain living in the home as usual rent-free and you make this declaration when you are drawing up the trust agreement.
At this point your tax responsibility has not vanished. Since your beneficiary will be assuming ownership of the home after the term expires there is the gift tax to address. However, because of the fact you are going to be living in the home you are retaining an interest in it.
The taxable value of the home is reduced by your retained interest, and it is going to be well below the actual true fair market value of the property. This is where the tax savings lie and the transfer could actually take place tax-free if the value of your estate coupled the taxable value of this gift was to stay within the unified exclusion amount.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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