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Minimizing taxes with a Qualified Personal Residence Trust

Nevada residents who are setting up a comprehensive estate plan may be interested in one way to minimize the tax burden on their beneficiaries. This type of trust is useful when a home is being passed on in the estate.

Experts recommend that homeowners who wish to reduce the total value of their estate look into a Qualified Personal Residence Trust. The QPRT is an estate planning vehicle where the owner of the home transfers title of the property into a specific type of trust. This trust is set up for a specified term of years. After this term is up, the property will then be transferred to the named beneficiary. During the term, however, the owner of the property is free to use it as they had always done. There is no change in the day-to-day operation of the home.

There are numerous benefits to setting up this type of trust. The value of the property for estate tax purposes stays at the appraisal value made at the time the QPRT is set up. If the home value increases, this can result in a large tax savings for the beneficiary. Additionally, when calculating gift tax, the expected residual value of the home is used, rather than the fair market value. One downside of the QPRT is that once the term has expired, the former homeowner will then have to pay a reasonable rental value to the new owners if they choose to continue living there.

Understanding the complexities of a QPRT and other trust planning methods can be difficult without the help of a professional. An attorney may be able to help establish the trust and draft other estate planning documents, including a will, living will and power of attorney.

Source: Wealth Management, "Smart Tax Planning: How Your Vacation Property Can Provide Savings", Venita Zavidny, June 20, 2014

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