Our uncertain estate-tax environment has made traditional estate planning more complicated than ever; however, there are still some estate planning tools that are worth considering. The qualified personal residence trust (QPRT) is one such tool.

A QPRT is a relatively simple tools for transferring ownership of a personal residence to younger family members for estate tax saving purposes. The QPRT is an irrevocable trust that is created by a homeowner during his or her lifetime. The homeowner transfers title to their personal residence to the QPRT and the homeowner retains the right to reside in the personal residence for a term of years (typically somewhere between five to fifteen years). Thereafter, the trust beneficiary receives full title to the personal residence. Homeowners can select any one or more trust beneficiaries of his or her liking.

If the homeowner survives the period of time specified in the trust, then the QPRT personal residence will not be included in the homeowner’s taxable estate when the homeowner dies.

The QPRT has the added benefit of removing the increase in value of the personal residence that occurs after the homeowner transfers the personal residence to the trust from the homeowners’ taxable estate. The estate tax savings due to this added benefit can be especially significant if the price of contributed real estate continues to increase in value after it is contributed to the QPRT.

On the other hand, the personal residence will be included in the homeowners taxable estate upon his or her death if he or she fails to survive the period of time specified in the QPRT. This risk is minimal since the home owner would be in the same position had he or she not established a QPRT.

The only advantage that homeowners lose if they die before the period specified in the trust is the gift taxes that are paid to contribute the personal residence to the trust. Even then, the gift taxes are only imposed on the remainder value of the QPRT house — not the full value of the house — at the time of the transfer.

Read the Rest: 1 2