Qualified Personal Residence Trusts (“QPRTs”) Can be Used to Effectively Transfer an Interest in a Residence
A QPRT is a trust that may be used to transfer an interest in a principal residence and/or one “vacation home” on a tax effective basis. For this purpose, a “principal residence” is an individual’s primary residence. A “vacation home” is one home that someone owns which is not rented to others more than 14 days/year.
When a person gifts his or her residence (or vacation home) to a QPRT, he or she keeps the right to live there for a certain number of years. At the end of the “QPRT term”, the residence passes out of the QPRT to children (or trusts for their benefit). The value of the gift of the residence is reduced by the actuarial value (determined using IRS tables) of the person’s right to live there during the QPRT term. As a result, the gift (for gift tax purposes) is a much smaller amount than if the QPRT were not employed.
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