Qualified Personal Residence Trust
- How does it work?
- What are the key benefits of a QPRT??
- If I have a second home, can I use the QPRT for both homes?
- Is a gift tax return required when a gift is made to a QPRT?
- Are there any other tax benefits offered by a QPRT?
- What If I Die During the QPRT's Term?
- Does my age and the QPRT term affect the tax consequences of the QPRT?
- What if I outlive the QPRT's term and want to continue living in the residence?
- Can the residence be sold while it is in the QPRT?
- Will my children receive the residence with step up in basis at the End of the QPRT Term?
- Do any income tax returns have to be filed in connection with a QPRT?
What are the key benefits of a QPRT?
There are several tax, economic and asset protection benefits associated with a QPRT.
Leveraging a person's estate and gift tax credit.
A transfer of property to a QPRT is currently treated as a taxable gift. The value of the gift is based on the present value of the remainder beneficiary's right to receive the property at the end of the QPRT term.
For example, without this exception, a gift of a residence worth $1,000,000 and subject to the right of the donor to live in the residence for 15 years (or any other term) would be valued at $1,000,000 for gift tax purposes. However, with the passage of this law, the same $1,000,000 gift of the residence made in January 2008 would be valued at only $310,380 for gift tax purposes.
Because the estate tax rate can approach or even surpass 50%, this would obviously result in significant estate tax savings. You would have effectively transferred an asset worth $1,000,000 to your children by using only $310,380 of your estate and gift tax credit (your gift credit is currently valued at $1,000,000 as of January 2008, and your estate tax credit is $2,000,000 as of that date).
Protects the home from potential creditors
Because a QPRT is an irrevocable trust and the residence would no longer belong to the donor, the donor's creditors would not be able to execute a judgment lien on the residence. Thus, a QPRT provides excellent asset protection benefits.