Qualified Personal Residence Trust

A qualified personal residence trust (QPRT, pronounced “Q-Pert”) is a specialized form of grantor retained interest trust (GRIT). It is an irrevocable trust into which you transfer an interest in a personal residence, and in which you retain the “income” interest — the right to use or live in the home for a specified term of years. At the end of the term of years or upon your death, whichever is earlier, the home passes to the remainder beneficiaries named in the trust document (typically children) or is held in trust for their benefit. You may continue to live in the home after the term of years ends as long as you pay fair market rent to the remainder beneficiaries.

A successful QPRT transfers, federal gift and estate tax free, any appreciation experienced by the QPRT property during the term of years that is in excess of the rate of return assumed by the IRS (known as the Section 7520 rate, hurdle rate, or discount rate) when determining the value of the gift.

For a QPRT to be successful:

  • The grantor must outlive the term of years
  • The QPRT property must outperform the Section 7520 rate
  • The QPRT document must be properly drafted
  • The residence must be occupied by the grantor, the grantor’s spouse, or the grantor’s dependents during the term of years
  • A written lease must be executed, and fair rental value must be paid to the remainder beneficiaries, if the grantor remains in home after the term of years expires

Key strengths

  • Because of the retained interest, the value of the transfer for federal gift and estate tax purposes is discounted
  • At the end of the term of years, the QPRT property (value of home at transfer plus any appreciation) is removed from the grantor’s gross estate for federal gift and estate tax purposes
  • Avoids ancillary probate if home is located in another state

Key tradeoffs

  • If the grantor does not outlive the term of years, property in the QPRT is includable in the grantor’s gross estate for federal gift and estate tax purposes
  • If the QPRT is unsuccessful, any costs incurred to create and maintain the QPRT will be wasted
  • Rent must be paid to the remainder beneficiaries if the grantor lives in the home after the term of years expires

How is it implemented?

  • Hire an experienced attorney to draft the QPRT document
  • Have the home professionally appraised
  • Transfer home to QPRT (i.e., execute and record deed)
  • File gift tax return(s)
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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax and legal professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of PA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.