Q:

How long should I retain the right to occupy the home that is transferred to the QPRT?

A:

The retained term of a QPRT is a matter of calculation, discussion and decision. First of all, the donor, the grantor of the QPRT trust must survive the term in order for the QPRT to actually work. If the donor dies during the term of the QPRT, the house gets dragged back into the estate and it’s as if the QPRT was never done and all the client’s loss have been the transaction costs in putting it together. The client needs to survive that term. We’re going to take into account the age of the donor, the life expectancy according to the tables, the actual health of the donor and then compare that against the expected results we get using the current 7520 interest rates, the applicable federal rate that the IRS gives us every month against that life expectancy and the appraised value of the house. It’s really a matter of calculating what’s the give we’re willing to make and whether or not the leverage is enough to warrant creating the QPRT

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.