When it comes to estate planning, there is no shortage of tools to help you achieve your goals, protect your family’s future, and secure your legacy. Most people are familiar with the essential, foundational estate planning tools—wills, trusts, powers of attorney, etc. However, most people don’t know about the myriad of additional estate planning tools designed for very specific situations. For example, say you want to pass your house down to a child, but are worried about the tax burden you’ll saddle them with. In this case, a special type of arrangement known as a Qualified Personal Residence Trust could be the perfect solution to your dilemma.
How Does a Qualified Personal Residence Trust Work?
A Qualified Personal Residence Trust (QPRT) is a type of irrevocable trust that allows you to exempt the appreciation of value of your home from your personal estate. In this arrangement, you remove your home from your estate and transfer it to a special trust that exists solely for this purpose. After the trust is set up, you can continue to live in your home for a specified length of time. Once that time period expires, you may no longer live in the home rent-free.
Here is where the advantages of the QRPT come into play. When you set up the trust, the value of your property is frozen as far as tax purposes are concerned. This means that, even if the value of your home increases significantly during the term of the trust, your home’s value used in calculating your taxable estate, will be its worth at the time you transferred it into the trust rather than its appreciated value at the time of your death. Setting up a QRPT can be a great way to lessen your beneficiary’s tax burden while still enjoying the use of your home.
Special Considerations for Qualified Personal Residence Trusts
Despite its helpful provisions, a QPRT does not come without risk. When setting up this type of trust, a critical consideration is determining the length of your own continued use of the residence. You can set the term at any length you want, but you’ll need to strike the right balance. You don’t want the term to be too short; otherwise, you may have to leave your house before you’re ready. At the same time, you don’t want to set the term for too long. If you pass on before the expiration of the term, the tax advantages of the trust are lost altogether.
Because the QRPT is an irrevocable trust, you’ll want to be certain that this arrangement is the right one for you and your family before proceeding. Working with an experienced estate planning attorney is the best way to determine how to pass down your family home to your loved ones.
Contact the Estate Planning Law Group of Georgia
If you have any questions about setting up a Qualified Personal Residence Trust or about any aspect of trusts and wills, the Estate Planning Law Group of Georga is here for you. Give us a call today at (770) 822-2723 or fill out the form below and start putting your family first.
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