The qualified personal residence trust (QPRT), also known as a personal residence trust, is a tool used for estate planning, tax planning, and asset protection. It is a trust that is set up to protect a primary residence from large gift and estate taxes as well as bankruptcy creditors. This trust allows the owner of the residence (the grantor) to retain the usage of their primary residence for a designated period of time while also transferring their primary residence to their family members or heirs at a reduced tax rate.
How Does a QPRT work?
In a QPRT, the grantor is the creator of the trust and the trustee handles the execution of the agreement. The term of the trust is the length of time that the grantor will retain the benefit of the primary residence, after which time the primary residence is transferred to the heirs at a reduced gift or estate tax rate. During the term of the trust, the grantor remains responsible for all expenses related to the residence and holds a qualified life estate in the home. This means that the grantor can use, enjoy, and live in the residence for the chosen term.
At the end of the term, the grantor must vacate the primary residence and the residence is transferred to the selected heirs. The benefits to the grantor of setting up a QPRT include avoiding large gift or estate taxes on the residence as well as gaining asset protection by retaining the right to enjoy the residence during the term of the trust.
Who Benefits From a QPRT?
QPRTs can be beneficial for individuals who want to pass on a primary residence to their family members or heirs without incurring large gift or estate taxes. Since the residence is transferred at a reduced rate, it can save the grantor and their estates from large, unexpected gift or estate taxes. Furthermore, by retaining the right to the primary residence during the term of the trust, the grantor receives asset protection in case of bankruptcy or other legal issues.
Conclusion
A qualified personal residence trust (QPRT) is a trust that is typically used by individuals who are looking to pass on a primary residence to their family members or heirs while avoiding large gift and estate taxes. It allows the grantor to transfer their primary residence at a reduced gift or estate tax rate while retaining the right to use the residence during the term of a set up trust. By setting up a QPRT, grantors can save large sums of money in gift and estate taxes as well as receive asset protection throughout the term of the trust.