A qualified personal residence trust gives a taxpayer a straightforward way of removing the value of a personal residence from an individual’s taxable estate. Qualified personal residence trusts are useful in situations where an individual would like to transfer their personal residence to family members at some point in the future.
Qualified Personal Residence Trust
A QPRT is generally only allowed to hold a personal residence and no other assets. In some cases, there are flexible QPRTs that will allow a taxpayer to hold other related assets in addition to one personal residence. This property will generally not be any type of personal property of the taxpayer such as household furnishings.
Setting up a QPRT
According to treasury regulations, each taxpayer is allowed to setup two QPRTs, one for their primary residence, and another for their occasional residence. The trust allows the grantor to live in the residence rent free for a specified period of time. The grantor is responsible for all expenses of the residence such as real estate taxes and maintenance. Once the specified period of rent free living expires, the grantor must paid rent to the beneficiaries of the trust at the local rental market rate.
QPRT is Irrevocable
A QPRT is an irrevocable trust and unless it ceases to qualify as a QPRT, a settler cannot expect to regain ownership. When the trust terms expire, the residence is automatically passed to the beneficiary and become unavailable to the settler as a residence or asset.