In this era of uncertainty about estate tax, it may make sense to transfer a house to a child or children by using a qualified personal residence trust (QPRT). A QPRT enables a home to be given away at a discount, for gift tax purposes.
Say you own a home currently valued at $400,000. You can create a QPRT and name your children as beneficiaries of the trust. Then you’d transfer the house into the QPRT.
A present value will be placed on the future gift to your children. This value will be based on:
* Your age;
* The length of the trust term; and
* Current interest rates.
Suppose that your $400,000 house is not mortgaged and the QPRT has a 10-year term. Using current interest rates, the present value of the gift for tax purposes might be around $200,000.
Thus, you’d remove an asset that might appreciate from your taxable estate yet enjoy a gift tax discount. At the end of the trust term, you can rent the house from your children, if you wish. Choose a trust term you are likely to outlive because the house will be included in your estate if you die before the transfer to the trust beneficiaries.