Qualified personal residence trusts (QPRTs) can be used to pass a principal residence or a vacation home to trust beneficiaries while reducing gift tax. Today, lower property values may provide an incentive for creating a QPRT. If a house valued at $600,000 formerly is now worth $300,000, transferring it to heirs via a QPRT might be worthwhile.
For gift tax purposes, a $300,000 house might be valued at only $150,000 when transferred into a long-term QPRT. As long as the grantor outlives the QPRT term, the house will eventually go to the trust beneficiaries, who could be the grantor’s children. Even if a subsequent rebound in housing prices moves the value of the home to $600,000 or more, that home will be out of the trust grantor’s taxable estate.
Generally, a QPRT might work out well if:
* The house is located in an area where it is likely to gain value after the transfer to the trust; and
* The trust beneficiaries agree to be responsible for the house if the grantor becomes unable to manage it. In many QPRTs, the trust grantor has the right to remain in the house after the trust term, paying a fair rent to the new owners.