Despite the requirement that the QPRT must hold a residence, QPRT status will not necessarily be terminated if the residence is sold during the QPRT term. In fact, Regs. If the trust agreement does not, the trust will cease to be a QPRT even if the proceeds are otherwise held in compliance with the regulations.
Is a QPRT trust irrevocable?
A qualified personal residence trust (QPRT) is a specific type of irrevocable trust that allows its creator to remove a personal home from their estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.
What happens when a trust ceases to be a QPRT?
If the property ceases to be used as a personal residence, the trust ceases to be a QPRT and the trustee must distribute the assets outright to the grantor or convert the QPRT to a grantor retained annuity trust (GRAT).
Can a QPRT help reduce the size of an estate?
Transferring a residence to a qualified personal residence trust (QPRT) is a popular estate planning technique that can help reduce the size of the grantor’s estate.
How does transfer of property to a QPRT work?
Step 1. Transfer of property to a QPRT. The grantor creates a QPRT for a term of years and designates beneficiaries, usually family members. The grantor contributes the residence to the trust, thus removing it from his or her own name and creating a taxable gift. The fair market value of the residence is discounted for gift tax purposes.
When does the grantor of a QPRT have to relinquish ownership?
The grantor has a predetermined limit on the right to occupy the residence placed in trust and must relinquish ownership at the expiration of the QPRT term. If the residence transferred to the trust is subject to a mortgage, there may be some complexity in accounting for the monthly mortgage payments and minimizing the income tax consequences.
