How to Set Up a Qualified Personal Residence Trust
The decision to set up a QPRT (qualified personal residence trust) will let you pass on your home to your children with a major tax savings and remain in the home for a predetermined number of years. The term of the trust is set in relation to your age and prospective number of years remaining.
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Instructions
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Transfer the title of the house to the spouse or the children of the owner with a qualified personal residence trust (QPRT). The owner can maintain residency while the house is in trust.
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Determine the length of the qualified personal residence trust at the time of setup. For the heirs to get the most tax benefit out of a QPRT, the owner must outlive the trust. Set the length of term within a reasonable amount. If you are 55 and retiring in good health, a 20-year term might be realistic. If you are 65 or 70 years of age, a 10-year term might be more prudent.
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Get the facts about the tax responsibility of the heirs if the owner dies before the qualified personal residence trust expires. The entire amount of the property will become a part of the taxable estate based on current value. Some states will require a state gift tax, as well.
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Plan your setup of a qualified personal residence trust to include the option to lease or rent the house at fair market value once the trust has expired. This will make it certain that you can remain in your home as long as you desire, and it will add more funds to the value of the estate tax-free.
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Set up a qualified personal residence trust for your vacation home. The only two homes that qualify for a personal residence trust are your primary home and your vacation home.
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Tips & Warnings
Surviving past the QPRT term provides the greatest value. If you do not outlive the trust, the house will be subject to estate taxes.
Evaluate the potential estate tax savings with the possible increase in capital gains tax for the beneficiary, should he sell the house before his own death.
Consider a qualified personal residence trust carefully if there is a mortgage on your home. If you are unable to meet the payment, the responsibility of the mortgage falls on the owners of the trust.
