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A qualified personal residence trust (QPRT) is an
irrevocable trust created by an individual,
(donor.) At the time of its creation, a QPRT is funded with the donor's
ownership interest in a personal residence. By using a QPRT the donor can
exclude the full value of the residence from the donor's estate, and the
residence will not be subject to estate tax. Note that if the donor dies
during the QPRT term, the residence will be brought back into the donor's estate
for estate tax purposes. However, since the donor's estate will also receive
full credit for any tax consequences of the initial gift to the QPRT, the donor
is no worse off than if no QPRT had been created. |
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The donor transfers the title to the donor's primary residence or vacation home
to a QPRT, retaining the right to continue to use the residence for a term of
years. Provided the donor survives the term of years, the donor's reserved right
to use the residence terminates when the QPRT term terminates, and the residence
will not be included in the donor's estate for estate tax purposes.
At the termination of the QPRT term, the residence will be distributed to the
donor's children or to other beneficiaries chosen by the donor, or may remain in
further trust for the benefit of those beneficiaries. The donor may agree with
the beneficiaries or with the trustee to continue to use the residence, so long
as the donor pays fair market rent for this use.
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The initial transfer of the residence to the QPRT will be considered a gift by
the donor for tax purposes. However, the tax consequences of this gift will be
considerably more modest than the estate tax consequences to the donor's estate
had no QPRT been created.
Since the QPRT is a "grantor" trust, during the term the
donor remains entitled to any income tax attributes of the residence, such as
real estate deductions and other income tax advantages associated with home
ownership.
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