A Qualified Personal Residence Trust ("QPRT") is an estate planning technique used to leverage a gift of your principal residence or vacation home out of your estate at a significant discount. The technique, when successful (which requires your outliving the term of the trust) can save substantial estate taxes. However, to succeed, you must have all your QPRT ducks in a row. Not a simple task considering that many different professionals are involved. Unless you've expressly confirmed that one professional is honcho'ing the plan, make sure you have all the following documents and steps addressed. Too often taxpayers try to address many of these steps to control professional fees and the steps are ignored or only partially completed, undermining the objectives:
Be sure you have a signed original of the QPRT agreement. The agreement should be dated (too often trustees fail to fill in the date in the blank provided). Signatures should be witnessed and/or notarized as required in the document. The house to be transferred to the trust should be indicated in the trust or an attached schedule. In many plans there may be two QPRT agreements as ½ of the house is often transferred to a QPRT for the husband, and ½ to a QPRT for the wife. If there are any questions on these items contact your estate planning attorney.
√Tax Identification Number:
A copy of the IRS documentation assigning the number should be saved. If you cannot find the information, call your accountant.
You should have an original deed that reflects the stamp of the local recording office (e.g. the County Clerk) and the book and page number where recorded. The deed should be consistent with the manner in which the QPRT trust agreement was structured. So, if you and your spouse owned the house jointly (which is common) but each transferred ½ the house to your respective QPRT, then you should have a deed from the two of you as husband and wife to the two of you as tenants in common (so that you each own a divisible half interest to transfer). After the date that deed is recorded you should have an original recorded separate deed from each of you to your respective QPRT. The date on the deeds to the QPRT and their recording should be after the dates on the deed changing the title to tenants in common. The deeds transferring the house into the QPRT should ideally be dated the same date as the QPRT. If you're missing any of these items contact your real estate attorney or estate planner (depending on who prepared the deeds).
An appraisal confirming the value of the house when given to the trust, and any discounts if less than 100% was given, is essential. If you cannot find a copy contact the appraiser used to obtain one.
√Gift Tax Return:
A gift tax return should have been filed reporting the gift of the house to the trust. If you have a complete copy of the filed return, it may have many of the other documents and information attached (deed, appraisal, basis calculation, etc.). If a gift tax return was not filed, or if you're not sure, call your accountant or estate planner (depending on who prepared the return).
√Income Tax Return:
Some accountants file a Form 1041 trust income tax return with an attached statement indicating that the QPRT is a "grantor trust" and that all deductions (there should be no income unless it was converted to a QAT on the sale of the house) are reported on your personal return. If an income tax return was not filed, or if you're not sure, call your accountant.
Your property and casualty insurance, and title insurance, should have been updated to reflect the QPRT as owner, and it should also list the trustees as insured. If you're not certain, call your insurance agent.√Mortgage: If there is, or was, a mortgage or home equity line, a copy of the mortgage or line, and the documents and steps taken to address it in the context of the QPRT should be saved. Payment of principal on your home mortgage would constitute additional gifts to the QPRT each time you made a payment. Different estate planners address this issue in different ways (the simplest being having you pay off any mortgages before the transfer to the QPRT). The documents confirming how you implemented this plan should be saved. If you're not clear and had a mortgage, contact your accountant and estate planner.
Subscribe to our email list to receive information on consumer webcasts and blogs, for practical legal information in simple English, delivered to your inbox. For more professional driven information, please visit Shenkman Law to subscribe.