Qualified Personal Residence Trust or QPRT is also known as the personal residence trust. This trust should not be viewed as an asset protection tool. Depending on your age (if you’re over 70) then it is an okay financial tool. However, if you need real asset protection from frivolous lawsuits, eliminate probate and voluntary tax and decreasing the chance of Medicaid spend-down then it’s best to talk to Estate Street Partners® at 1800-938-5872.
A personal Residence Trust or a Qualified Personal Residence Trust is a specialty Trust Agreement used to transfer the personal residence (in an irrevocable manner) out of an Estate Tax position by “gifting” the personal residence thus reducing the future appreciation of the residence from estate taxation. The person gifting the house to the Trust gets to live there rent-free for a specified period of years. If the person gifting the house survives the end of the specified number of termed years, the residence will pass estate tax free to the heirs.
The first tip-off that the guy recommending the Qualified Personal Residence Trust (QPRT) is not well versed in asset protection is the suggestion that the Qualified Personal Residence Trust is an asset protection device (a rip off).
The Qualified Personal Residence Trust is an okay financial device for estate planning for those people age 70 and over, but it’s not an asset protection device. There are better planning tools for reducing frivolous lawsuits, elimination of the probate process, elimination of the only voluntary tax in the entire IRS Code (the estate tax) and reducing the probability of the Medicaid spend-down nursing home provisions.
There are problems with a Qualified Personal Residence Trust:
- The Grantor (original owner) must give-up their personal residence irrevocably and could end-up paying non-tax-deductible rent to the QRPT which in turn the Qualified Personal Residence Trust (QRPT) will be subject to Trust Taxes at a rate of 35% plus.
- If the Grantor dies before the term years the gift is reversed and the total amount is included in the estate for purposes of taxation.
- Part of the Unified Estate and Gift Tax Credit will be used when the house is “gifted” to the Trust and elects to use part of their tax credit.
- The residence must continue to be used as the Grantor’s personal residence for the specified term of years (exception if the Grantor is institutionalized, i.e. nursing home) otherwise ceases to be a Qualified Personal Residence Trust and the tax benefit is reversed.
- Putting a mortgaged property into a Qualified Personal Residence Trust is a bad idea. Part of the mortgage payments is considered additional gifts, thus further eroding the gift tax exemption.
- Qualified Personal Residence Trusts are structured as Grantor Trusts and so all income and expenses of the Qualified Personal Residence Trust is taxed to the Grantor.
As an asset protection tool, the Qualified Personal Residence Trust has marginal value. The Qualified Personal Residence Trust is not a bad estate planning tool for clients over the age of 70 to gift away a large asset at a significant discount. The Qualified Personal Residence Trust does not work well with younger people. The basic problem is if the Grantor dies before the stipulated number of years (do you know when you’re going to die?) the tax advantages are reversed. And, if the Grantor outlives the stipulated number of years, the Qualified Personal Residence Trust recognizes taxable rent at the trust tax rates. Estate Street Partners® is not a big fan of the Qualified Personal Residence Trust, since the Qualified Personal Residence Trust “locks-in” the Grantor into an irreversible set of circumstances and variables i.e. naming the number of years the Grantor is going to live. There are better devices.
To learn more about repositioning assets for wealth building, implementation of precise asset protection systems, tax minimization strategies, elimination of the probate process, and elimination of the only voluntary estate tax system, and tax efficient transfers to your next generation contact us toll-free at 1888-938-5872.
This statement is required by IRS regulations (31 CFR Part 10, §10.35): Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.