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Estate tax worries? Consider a Qualified Personal Residence Trust

On Behalf of | Aug 31, 2021 | Estate Planning |

The estate tax is levied on all estates valued at more than $5.34 million and features a maximum rate of 40 percent. It’s an enormous concern for many estate planners.

However, estate tax liability can be mitigated with a nifty tool known as a qualified personal residence trust or “QPRT.”

How do QPRTs work?

A QPRT lets the testator transfer his house – the value of which usually makes up a huge part of his estate – to his heirs while also reducing gift tax liability.

The testator conveys his house into a trust and then gifts the house to his heir. This reduces estate tax exposure because the residence is no longer considered a part of his estate (it now belongs to his heir).

However, the trust also includes a condition granting the testator occupancy rights for a set term – say, 10 to 15 years. This reduces the home’s value (who wants to share a house with a stranger?) and in turn reduces gift tax liability which is assessed as a percentage of a home’s estimated value if sold on the open market.

QPRT’s require professional help

Setting up a QPRT is complicated and requires professional assistance. There are many important caveats that the average personal would likely never consider. For example, the testator is required to pay his heir rent for the term of his occupancy.

An experienced trusts and estates lawyer can evaluate if a QPRT is right for you based on your unique objectives. They can then craft a bespoke estate planning strategy that protects your interests and saves your heirs time and money.

Las Vegas residents shouldn’t hesitate to reach out. Many lawyers offer a free initial consultation at no out-of-pocket cost to the client.

 

David A. Straus is the author or co-author of many publications.

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