Las Vegas Qualified Personal Residence Trust (QPRT)
Southern Nevada Estate Planning and Probate Attorney
Our Clark County law firm works exclusively in estate planning probate and financial services matters. Our lawyer provides a variety of advanced estate planning options for clients in the Las Vegas metro area.
For basic information about Qualified Personal Residence Trusts, or QPRTs, read information below. To discuss your estate and financial needs in a free initial consultation, contact our Nevada estate planning lawyer.
Qualified Personal Residence Trust (QPRT)
Q: What is a Qualified Personal Residence Trust?
A: A Qualified Personal Residence Trust (QPRT) is a trust which is created to hold and ultimately distribute residential real property.
Q: What are the benefits of a QPRT?
A: There are several benefits of creating and funding a QPRT. Most of these benefits come in the form of tax savings related to federal gift and estate transfer taxes.
Q: How does a Qualified Personal Residence Trust work?
A: The first step is to identify residential real property which you want to pass on to your heirs. You, as the “Grantor,” establish the QPRT and transfer the residential real property, or “personal residence,” in trust, to the Trustee of the QPRT.
In the QPRT, you will retain the right to live in the residence for a specified number of years. After the term of years expires, the property passes outright to the predetermined heirs as set forth in the QPRT.
Q: Can I use a Qualified Personal Residence Trust for any residential real property?
A: Unfortunately, there are some restrictions on which property will qualify for the tax benefits available through a QPRT. Each person may only have two properties held by a QPRT at any one time, the Grantor’s personal residence, and one other residence. If the other residence is a rental, the Grantor must occupy the rental each year for at least 14 days or 10% of the number of days rented, whichever is greater.
Q: What tax benefits does a QPRT provide?
A: If the Grantor survives beyond the term of the QPRT, the property is distributed to the predetermined beneficiary, and is no longer included in the Grantor’s gross estate. Also, the QPRT can allow the Grantor to continue to live in the property and pay the beneficiary “rent” at the current fair market value, which continues to transfer assets out of the Grantor’s gross estate, compounding the estate tax savings.
At the time the property is contributed to the QPRT, the value of the property is discounted for gift tax purposes because the beneficiary will not actually receive the property until years in the future. For example, a gift of a one million dollar home to a QPRT, with the Grantor retaining a ten-year interest in the property may only create a $500,000 gift for gift tax purposes. The longer the term the Grantor retains, the larger the discount.
Further, the rapid appreciation of real estate allows you to leverage this discount. For example, if that one million dollar home only appreciated 7.2% per year for ten years, it would be a two million dollar home after the ten year period. Using a QPRT to transfer the home to an heir in this scenario may produce a tax savings of over $900,000!!!
Q: What happens if the Grantor dies before the end of the term?
A: If the Grantor dies prior to the end of the term as stated in the QPRT, the entire value of the property, as valued at the date of the Grantor’s death, is counted in the Grantor’s gross estate. Thus, it is important to choose a reasonable term, based upon the Grantor’s health and other factors, when creating a QPRT. There are techniques, such as an Irrevocable Life Insurance Trust, which can be used to hedge against the tax created by a death during the term.
To learn more about living trusts and other estate planning options, contact our Las Vegas estate planning attorney.
Free initial consultations