Utilizing a Qualified Personal Residence Trust

A QPRT allows you to stay in the house for specified period of time.

The QPRT creates a deferred gift for a spouse, child or charity.

Because the real estate gift is deferred, its taxable value is lowered.

Did you know?

There are a number of ways to put a second home in your kid’s name. A QPRT is one.

A qualified personal residence trust (QPRT) is a great tool to use when you decide to leave your second home to your kids instead of selling the real estate. The QPRT was created by Congress in 1990 to address concerns about inheritors being forced to sell houses because of the tax burden associated with ownership transfer.

QPRTs are created for the benefit of the spouse or children of the homeowner, or for charity. Once the trust is set up the owner transfers the title of the home to the QPRT. This title transfer includes an agreement stipulating a set amount of time the owner can remain in the house. In fact, this continued residency by the owner is a hallmark of qualified personal residence trusts.

The full benefit of the QPRT is realized when the residency period ends and the home as a “gift” becomes the property of the named beneficiary. Because of the deferred nature of the gift through the original owner’s continued occupancy, the value of the gift is not equal to the value of the home. The gift’s value is usually 25 to 50% of the value of the home.

If you have a second home worth $100,000 and leave it to your kids through a QPRT, after your continued occupancy term ends, your “gift” might be worth 40% of the home’s value, or $40,000. This is great benefit when it comes time to pay taxes on the gift.

A drawback is if the original owner dies before the term of occupancy is up, the home goes back into the estate and any inheritors won’t be able to claim reduced value on the real estate.