Qualified Personal Residence Trusts

Qualified Personal Residence Trusts

By: Martin M. Shenkman, CPA, MBA, JD

Qualified Personal Residence Trusts (QPRTs) are special house trusts designed to transfer principal residences to your kids while minimizing gift tax. The trust is similar to a GRAT in its ability to take advantage of the time value of money to dramatically reduce gift taxation. Because your children must wait until the trust ends, the value of the gift to them is less in current dollars.

However, when the trust terminates, action MUST be taken. The trustees must deed the house to the children (or trusts for them, depending on the language of the QPRT). The children need to insure the house and lease it back to you (so that you can continue to live there) and you need to pay fair rent. It is advisable to sign a written lease and the children should sign a document governing their ownership of the house to avoid issues later.

There is a risk taken by using a QPRT though: if you do not survive the term of the QPRT, the residence is brought back into your estate. However, since a portion of your exclusion used in the QPRT is restored, the whole transaction is a wash. So, this caveat aside, the benefits of using a QPRT far outweigh the risks.

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