Qualified Personal Residence Trust

The “qualified personal residence trust,” commonly referred to as a QPRT, is another type of irrevocable trust.  This type of trust is specifically designed to hold the Trustors primary residence (or a second home), and the terms of the trust specifically permit the Trustor to remain in the home rent free for a specified term of years (in other words, the Trustor retains an interest—the right to use and possess the property for the duration of the term), after which the Trustor must pay fair market rent to remain in the home. The rust beneficiaries receive a remainder interest in the property, thus the value of the gift is equivalent to the fair market value of the property, reduced by the value of the Trustor’s retained interest.  By doing so, the Trustor is able to gift the entire property at a discounted value while still retaining the right to live in it. For tax purposes, the trustor effectively reduces his or her taxable estate by removing all future appreciation from the Trustor’s taxable estate and preserving a larger portion of the Trustor’s lifetime gift and estate tax exemption. 

When implementing a QPRT, there are a few important considerations. First, the Trustor must outlive the selected rent free term. If the Trustor dies prior to the expiration of the term, the value of the residence will be included in his or her estate. Second, after the term the Trustor must pay fair market value rent if he or she continues to live in the residence. While this may cause a cash flow issue, for those that are able to make the payments, paying rent provides an additional estate tax benefit—the rent payments constitute an additional tax free wealth transfer.

If you are interested in learning more about the QPRT strategy or any other advanced planning strategies, please contact us to schedule a complimentary consultation at (714) 581-8808.

CONTACT INFORMATION

Lewis Business & Estate Planning, APC
949 South Coast Drive, Suite 555
Costa Mesa, CA  92626
Phone: (714) 581-8808
Fax: (714) 581-8809

 

ATTORNEYS
Christy L. Lewis, J.D., LL.M: clewis@lewisplanning.com
Jessica Ertel, J.D.: jertel@lewisplanning.com


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