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What Is a Qualified Personal Residence Trust (QPRT)?

A QPRT is a type of irrevocable trust designed to reduce gift and estate taxes often incurred when property is transferred to a beneficiary. Legally, a QPRT is a legal process necessary to protect a person’s assets for their beneficiaries and to protect assets from creditors and foreclosures. blame An immutable trust cannot be changed in any way when the trust is in place. This will help ensure that a judge cannot force a person to give up creditor protection or change the terms of the trust that would allow someone else to acquire assets.

Once the residence has been transferred to the trust through proper planning and execution, the transferor retains the right to live in that building for many years. When the owner lives in the house, there is no rent. The owner is responsible for all property costs such as repairs, property taxes, and maintenance fees that are paid by the Revenue Act 2003-42 [2003-23 IRB 993 section 4 Art. II (B) (2)]. If the owner survives after a predetermined number of years, the trust transfers ownership of the home to the beneficial owners without paying estate taxes. Beneficiaries can rent the house out to the original owner. The most interesting aspect of this plan is that after paying the rent after the QPRT ends the owner transfers the remaining assets to their beneficiaries without having to pay gift or estate tax. Receiving rent money from parents does not prevent giving money back to parents. If the house is sold, the proceeds from the sale can be used to buy another house or other property for the parents as the beneficiaries want.

A QPRT’s main advantage is the tax savings it provides to members and beneficiaries of the trust. When an address is transferred to a QPRT it is considered a gift but the IRS gift tax is not assessed. Instead the IRS calculates the gift transfer based on the declaration and the total time the home was in the QPRT, which is applied to the value of the home. At the end of the trust, which was agreed upon when the QPRT was created, and the owner is still alive, the residence is transferred to the beneficiaries free of gift or estate taxes.

If the residence has been appreciated since the initial assessment, the gift tax is based on the value of the home – as calculated by the IRS – and not on the increase in value of the home. If the home’s value does not increase or stays the same, the beneficiaries will not have to pay gift taxes on the home.

Another benefit of a QPRT is that the tax benefits can be improved if the husband and wife own the home jointly. Pursuant to Treasury Regulations section 25.2702-5(c)(2)(iv) a husband and wife can transfer half of their home equity to two QPRTs. Each separate QPRT allows husband and wife owners to live in the property for a number of years according to the conditions of each QPRT. In the event of a homeowner’s death before the QPRT ends, half of the trust will be vested in the estate and will be subject to taxes and gifts. So what if you want to sell the house that is in QPRT and buy a new house? The trustee of the QPRT simply sells the old house and buys a new one in the name of the QPRT. If the value of the new house is more than the old house, then the guardian should pay from the separate funds and keep the ownership of the part of the house.

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