What Is a Qualified Personal Residence Trust?

April 5, 2022
Media Estate Lawyers at Eckell Sparks Can Help with All of Your Estate and Trust Needs.

Many people use trusts to accomplish estate planning goals. One of the more popular trusts used for estate planning purposes is called a qualified personal residence trust (QPRT). A QPRT is an irrevocable grantor trust, allowing someone to use the gift tax exemption by placing a home, either primary or secondary, into a trust. The grantor determines how long they will retain possession and use of the home. After the grantor is done living in the home or having possession of the home, the residence is then transferred to the beneficiary of the trust.

Benefits of a Qualified Personal Residence Trust

The benefits of a QPRT are many. First, because it is an irrevocable trust and cannot easily be undone or changed, it provides asset protection while avoiding estate or gift taxes while transferring the property to the beneficiary. Basically, it allows a person to live in their home, but also transfer the home to someone else in a manner that significantly lowers the transfer taxes. With the traditional manner of transferring property, a person dies and the property is transferred to the beneficiary through the end-of-life estate process. However, this process requires a high estate tax. But with a QPRT, the property can be transferred during the owner’s life, and a minimal tax will be paid, much lower than the estate tax. Also, the owner can still use the property until they decide not to. This period of when the grantor lives in the home is called the retained income period.

Another possible benefit for a QPRT is when the retained income period ends. Suppose a couple places their home in a QPRT for a period of 10 years. After the 10-year period, their home automatically transfers to their child. At that point, the couple can decide to move, or they can stay in the home. If they stay in the home, they would have to pay rent to the child at the market rate. The benefit of this is that it is another way to transfer money, through the rent, to their child where no estate taxes are paid on the transfer.

A third benefit of a QPRT is asset protection. If a property is contained within a trust, the asset cannot be attacked by creditors filing lawsuits. Also, it protects the property from divorce litigation of the beneficiary and fighting over marital property. If the beneficiary gets divorced, the home is still owned by the trust and not the beneficiary so the home does not become part of a divorce settlement.

Negative Aspects of a QPRT

There are some negative aspects of a QPRT that you will have to review and understand to make sure a QPRT is right for you. If the owner of the home or the grantor of the trust dies during the trust period, the property reverts to the estate. If this happens, then the property will be transferred as per the terms of the will and estate taxes will have to be paid.

Media Estate Lawyers at Eckell Sparks Can Help with All of Your Estate and Trust Needs

If you want to protect your assets but set up the best way to transfer property to your loved ones without having to pay high estate taxes, hiring the right lawyer is the first thing to do. The Media estate lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. have been advising clients on the establishment of estate trusts for decades. Call us at 610-565-3701 or contact us online to schedule an appointment. Located in Media and West Chester, Pennsylvania, we serve clients throughout Delaware County, Chester County, and Montgomery County.