Qualified Personal Residence Trust (QPRT)

By: Elliott Stapleton

A Qualified Personal Residence Trust (QPRT)

A Qualified Personal Residence Trust (also known as a QPRT), allows the transfer of your residence out of your estate at a lower value for gift tax purposes. In this case, the grantor retains the right to live in the house for a number of years rent-free, which reduces the value of the home. After that period, the grantor must pay rent to the remainder beneficiaries.

The beneficiaries are typically the children (or a trust for the benefit of children) of the grantor. This device works best when interest rates are higher (it is not as good in a low-interest rate environment).

Why does a QPRT work better when interest rates are higher?

The QPRT gift’s value is determined by the remainder interest, which is the interest in the home that will be transferred to the beneficiaries after the individual’s death. The value of the remainder interest is calculated using Section 7520 interest rate tables, which are based on the current interest rate environment.

When interest rates are higher, the value of the remainder interest is lower, which means that the gift tax liability associated with a QPRT is also lower. This is because the higher interest rates make the value of the right to live in the home less valuable.

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