Qualified Personal Residence Trust
Different types of trusts are available for those who want to do some estate planning in addition to the creation of a last will and testament. A Qualified Personal Residence Trust is one of those plans that are readily accessible. It is also referred to as a QPRT.
What Is a Qualified Personal Residence Trust?
A Qualified Personal Residence Trust (QPRT) is one that is designed to hold and possess a residence in order to remove the value of said residence from the list of taxable assets within an estate. The residence does not need to be the primary home or property.
Writing up the QPRT
The strategy for writing up a qualified personal residence trust is standard procedure. It includes the need to determine each of the following before beginning:
· Who will be the initial trustee?
· Who will be the successor trustee?
· The length of time during which you would prefer to live in the home if it is a primary residence before it will transfer to the designated beneficiary or beneficiaries. This period of time is referred to as the retained income period.
· The length of time during which you would prefer to have use of the home if it is a secondary residence before it will transfer to the designated beneficiary or beneficiaries.
· Who will be the beneficiary or beneficiaries?
Funding the QPRT
In order to fund the qualified personal residence trust or transfer the ownership of the residence to the QPRT, you need to have a new deed recorded. The deed will be switched from your name into the name of the trust and it will be filed and recorded in the office of land records for the location in which it is situated.
Appraising the QPRT
It is also necessary to have the residence properly appraised. A fair market value should be determined as of the date that the property is transferred into the qualified personal residence trust. It’s important to establish this value for the calculation of gift taxes.
Reporting Gifts to the IRS and State
When a home or residence is gifted through a Qualified Personal Residence Trust, it is necessary to file a form with the IRS. In particular, Form 709 must be filed by April 15 of the year following the transfer of the residence into the QPRT. If the benefactor’s state of residence imposes a state gift tax, then appropriate paperwork must also be filed with the state by the April 15 deadline. In both cases, the transfer of the residence into the Qualified Personal Residence Trust is considered to be a gift to the beneficiaries since they would have ultimately inherited as well. Therefore, gift taxes would apply.
Retained Income Period
During the retained income period, the individual who transferred the real estate to the QPRT would go about his business as usual. Unless stated otherwise, the individual will continue to live in the home without paying any type of rent. Nonetheless, he will be able to declare any applicable tax deductions. However all of the expenses required to maintain the property will also need to be paid by this individual.
Transferring the Property’s Ownership
After the predetermined retained income period in the QPRT ends, it becomes necessary to transfer the ownership of the residence from the grantor to the ultimate beneficiaries of the trust. A new deed will have to be drawn up in the name of the trust beneficiaries. This document must then be filed at the office of land records.
For those individuals who are planning a last will and testament, lots of options exist. If they want to cut back on the estate taxes that their beneficiaries will pay, a Qualified Personal Residence Trust is an excellent option to use.