A Qualified Personal Residence Trust QPRT is an exceptional tool for individuals with large estates to move a principal residence or vacation home at the lowest possible gift tax value. The rule of thumb is that if someone makes a gift of property where he or she retains some advantage, the property remains valued for gift tax purposes in its full fair market value. There is not any decrease in significance for the donor advantage. That legislation allows an exception to the rule. Because of this, for gift tax purposes, a decrease in the residence’s fair market value is permitted for the donor’s retained interest. For example, suppose at Age sixty five Dad, has a holiday residence valued at one million. He transfers the residence into a QPRT and keeps the right to use the holiday residence rent free for fifteen years. The trust will terminate and the residence will be distributed to the grantor’s children.
The residence can stay in trust for their children’s benefit. Assuming a 3percent discount rate for the month of the move to the QPRT this speed is published monthly by the IRS, the current value of this future gift to the children is 396,710. This gift can be offset by the grantor’s 1 million lifetime gift tax exemption. If the residence grows in value the value of the residence upon conclusion of the QPRT will be 2,078,928.Assuming an estate tax Rate of forty five percent will be 756,998. The net result is that the grantor will have decreased the size of his estate by 2,078,928, controlled and used the holiday residence for fifteen years, used only 396,710 of his 1 million lifetime gift tax exemption, and eliminated all appreciation in the residence’s value throughout the 15 year term from estate and gift taxation. There is a Present lapse in the estate and generation-skipping transport taxes.
Though the Grantor must forfeit all rights to the Dairy Farm Residences UED Residential at the terms of conclusion, the QPRT document may give the grantor the right to lease the residence by paying fair market rent once the term ends. Furthermore, if the QPRT is designed as grantor trusts see below, at the end of the period, the rent payments would not be subject to income taxes to the QPRT nor to the beneficiaries of the QPRT. The lease payments will be presents to the beneficiaries of the QPRT – reducing the grantor’s estate. If the grantor dies during the term that is QPRT, the residence will be attracted back into the grantor’s estate for estate tax purposes.Top