What is a QPRT and how can it help me leverage the gift of my residence?
A QPRT, or Qualified Personal Residence Trust, is a gifting mechanism that is actually hardwired into the tax code; it’s called a house GRIT. So the Qualified Personal Residence Trust is a way for a senior generation to give their home to children or grandchildren, or a trust for the children or grandchildren, but it also allows them to retain to themselves the exclusive use of the house for a period of years, called the term of QPRT.
When the term expires, the ownership of the house now belongs to the trust for the children or the grandchildren, and in order for the senior generation to remain in the home, they’re required to pay rent to the new owner. Now, the new owner may be children, it may be grandchildren, it maybe be a trust for children or grandchildren, but that rest must be a fair rental value, based upon market values at that time; there can be no prior agreement as to a bargain rent, otherwise the Qualified Personal Residence Trust transaction will not work, and the house will be included back in the estate of the donor.
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.