Qualified Personal Residence Trusts

Keeping Real Estate in the Family With Qualified Personal Residence Trusts

Keeping Real Estate in the Family With Qualified Personal Residence Trusts
A qualified personal residence trust (QPRT) is an irrevocable trust that allows you to pass a home to the next generation in a tax-friendly manner during your lifetime.

Often, you’ll see a QPRT used for a high-value vacation property. Imagine you own a lake house, for instance. You’d like to keep it in the family, but you’d also like to minimize the recipient’s (and your own) exposure to estate or gift tax. 

That’s where a QPRT comes in: The property is transferred to an irrevocable trust during the grantor’s lifetime. They can remain in the home for a specified period of time, after which the residence becomes the property of the trust beneficiaries. The savings occurs because a QPRT “freezes” the value of the property at the time when the trust is created, thus removing the future growth of the property from the grantor’s estate.

Frequently, a QPRT is paired with an intentionally defective grantor trust (IDGT), which is a tax strategy that makes the grantor, not the trust, responsible for paying income tax on an asset. Both tax strategies are even more handy when you consider that the current federal estate-tax exclusion of $12.06 million is set to expire on the last day of 2025—after that, the exemption could slide down to about half of that amount.

QPRTs and IDGTs are extremely complex, with many more steps and stipulations than we can mention here. Before implementing either, speak with your wealth adviser to make sure the strategy suits your needs and to plan next steps.

Tax and legal information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice.  Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice. Always consult a licensed attorney or tax professional regarding your specific legal or tax situation.

Our statements and opinions are subject to change without notice.  All investments carry risk of loss and there is no guarantee that investment objectives will be achieved.

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