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Qualified Personal Residence Trust

A Qualified Personal Residence Trust (QPRT) is an irrevocable trust which you create to hold your primary residence or a secondary residence for a specified term of years, during which time you may use and live in the residence no differently than you do currently and would be entitled to all of the income tax benefits associated with ownership of the property including tax deductions for real estate taxes and the capital gain exclusion of $250,000 per person for the primary residence if you were to sell the residence. At the end of the trust term, the residence would pass to the trust beneficiaries or into a trust for them. At that time, you would be required to pay rent to the trust beneficiaries if you wish to continue the use of the property. The payment of rent provides an opportunity for you to further reduce the value of your taxable estate without any additional gift tax consequences. However, the rent would be taxable as ordinary income to your beneficiaries. Another option would be to have the residence pass to Grantor Trust at the end of the trust term. Because the beneficiaries will not receive the property until the trust term expires, the gift you are making to them is a future interest. The value of a future interest is determined based on your age when the trust is created, the term of the trust, and the average interest rate of U. S. Treasury obligations in effect at that time. The present value of the gift would ultimately be includible in your taxable estate rather than the full appreciated future value of the residence. The present value of the future interest is generally substantially less than the current value of the property.

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