Using QPRTs

Brody, Lawrence; Rothermich, Douglas
July 1994
Journal of Financial Planning;Jul94, Vol. 7 Issue 3, p106
Academic Journal
This article examines the role of qualified personal residence trusts (QPRT) in estate planning in the U.S. A QPTR differ from a personal residence trust, which is allowed to hold as its only asset one residence of the grantor, in that it can also hold limited amounts of cash for specific purposes. The QPRT allows an individual to transfer his or her personal residence to a trust at a substantial discount for gift-tax purposes, while retaining the right to use the property for a specified period of time, not for life. If the grantor survives the initial term, the trust property will go to his or her children and the entire value of the residence, including all post-gift appreciation on the property, will be removed from the grantor's estate for estate-tax purposes. The primary attraction of a QPRT is that for gift-tax purposes the grantor is only deemed to have made a gift equal to the present value of the trusts' remainder interest. One of the more important issues to consider in planning a QPRT is the income-tax status of the trust, particularly if the grantor intends to lease or purchase the property back from the trust following the expiration of the initial term. Because the QPRT is an irrevocable trust, it will be treated as a separate taxpayer by the U.S. Internal Revenue Service.


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