If you have worked hard and saved wisely throughout your lifetime and have managed to amass a moderate to large estate as a result you must be vigilant when it comes to estate planning to ensure that your assets are not lost to gift and estate taxes upon your death. While there are a wide variety of estate planning tools and strategies that can help you protect your assets, one commonly used tool is a Qualified Personal Residence Trust, or QPRT.
A Qualified Personal Residence Trust is a type of irrevocable split interest trust. The goal of a QPRT is to transfer a residence out of your estate at a low gift tax value. A QPRT works to achieve that objective because once the residence has been transferred out of your estate and into the trust, any future appreciation on the residence is excluded from your estate as long as you survive the term of the trust.
A QPRT can be used to transfer a primary or secondary home, such as a vacation home. When you create a QRPT the value of the asset gifted to the trust is determined, using a variety of factors such as your age at the time you create the trust, the duration of the trust, and the current federal tax rate found which can be found in IRC section 7520. The higher the federal rate is at the time the asset is transferred into the trust, the lower the gift value and the lower the potential gift tax. Unless you have already exceeded your lifetime exemption limit for gift and estate tax purposes you will not pay any taxes on the gift at the time it is made.
After the home is transferred into the trust you are able to remain in the home rent-free during the life of the trust. After the trust terminates, you may still remain in the residence and pay rent to the new owners (your beneficiaries), thereby providing yet another mechanism by which you can transfer wealth to beneficiaries without paying gift and estate taxes on the transfer. At the end of the trust term the residence either passes outright to the named beneficiary of the trust or may remain in trust for the beneficiary. In essence, a QPRT works by allowing you to leverage the lifetime exemption for gift and estate taxes, currently set at $5.43 million for 2015.
If you have additional questions or concerns about a Qualified Personal Residence Trust please be sure to contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.