Many different types of trusts exist for you to accomplish your estate planning goals. One of these is known as a qualified personal residence trust. This is a trust that allows you to transfer your primary or secondary home to a beneficiary in the future while benefitting from gift tax savings. Once the residence has been properly titled into the QPRT, you are eligible to remain in the house until a specified date.
After that date has come and passed, you will transfer ownership to the beneficiary of the trust. Any value that the home would accumulate during the time that you open the trust and transfer ownership to someone else, will not be counted for tax purposes, meaning that estate taxes will only be paid on as of the day that you established the trust.
One of the most common use cases for this kind of scenario is when you want your child to inherit your house but you are not yet ready to move out of it. In order to reduce the impact that keeping the house will have on your overall taxable estate in the future, you can generate a qualified personal residence trust for up to 10 years.
There are many different variations of how this might work in practice so it’s important to have an established relationship with an estate planning professional. You want to be sure that no mistakes are made as the tax benefits could be avoided by simple mistakes made in the establishment. There are a few steps involved in creating a QPRT. These include:
- Writing an irrevocable trust agreement.
- Funding the trust for the residents.
- Getting the appraisal of the residents for gift tax purposes.
- Reporting that gift to the IRS.
Scheduling a consultation with a dedicated Pasadena estate planning lawyer can help you decide if this is the right strategy for you and your loved ones.