FAQs: What Is A Qualified Personal Residence Trust

As part of your estate planning, you may want to lower the value of your taxable estate assets to protect your heirs. One of your most valuable assets is typically your personal residence. A Qualified Personal Residence Trust (QPRT) is a residential property that is transferred into an irrevocable trust for a specified number of years. At the end of the trust the property transfers to the trust beneficiaries. The QPRT property can be a primary home or a vacation home.

Advantages to a QPRT

QPRTs have many tax advantages for those with substantial assets is the trust is set up properly by a knowledgeable estate planning attorney:

• the trust effectively freezes the value of the house for tax purposes so that future appreciation is not counted for estate tax purposes
• the gift tax value of the residence is decreased substantially by the grantor retained interest
• the grantor, not the trust or the beneficiaries, has use of the home for the term of the trust, so the perceived value of that ownership is substantially less than the market value of the residence

A qualified estate planning attorney can advise on the best way to set up a Qualified Personal Residence Trust to minimize risks, such as if the term of the trust is too long, the grantor may die before the end of the term, and the residence reverts back into the grantor’s estate and all tax benefits are lost.

How to Create a Qualifed Personal Residence Trust

1. Have Your Attorney Create a QPRT
Consult an experienced estate planning attorney who can advise you on the pros and cons of creating the irrevocable trust.

2. Transfer Ownership of Your Residence to the QPRT
Your attorney will record a deed with the trust listed as the new owner.

3. Get the Residence Appraised
The residence put in the trust will need an appraisal to establish the gift tax value.

4. File the Gift Tax With the IRS
Taxpayers are required to report to the IRS any gifts in excess of the tax year’s annual gift tax exclusion.

Gift Taxes in Illinois

Illinois does not have a state gift tax, but any gift to an individual greater than the annual exclusion must be reported to the IRS. The 2019 annual gift tax is $15,000.00 or $30,000 for married couples; the 2019 lifetime annual estate and gift tax exclusion limit is $11,400,000.00.

A QPRT has many tax benefits, but this type of trust is not right for everyone. An estate planning attorney experienced in grantor retained interest and qualified personal residence trust can explain the pros and cons of a Qualified Personal Residence Trust for your specific circumstances.

Please call or email our estate planning and trust attorneys at Estate and Planning Legal Group in Lombard Illinois so we can schedule your initial consultation, 630.382.8073.