2 advantages of a qualified personal residence trust

    A valuable home in California can be subject to expensive estate taxes following the death of the property's owner. However, a qualified personal residence trust offers estate planners one technique for insulating heirs from major taxes.

    To create a QPRT, the owner transfers the property deed into the trust. The former owner must live in the home for the duration of the trust's operation but does not have to pay rent to the trust or beneficiaries. When the trust reaches the end of its term, the beneficiaries assume ownership of the property.

      Depending on the variables, the use of a QPRT could be advantageous for two reasons. Initially, the property gift to the beneficiaries can be declared at a greatly reduced value because of the delayed transfer. Value could be slashed by 50 percent or more compared to the fair market value. The trust also freezes the value of the home to protect heirs from gift taxes. In a housing market with rising prices, the trust segregates the property from future increases in value.

      A person who is considering strategies for an estate plan could consult an attorney familiar with the legal issues attached to estates with substantial assets. An attorney could examine the overall financial situation of the client and research how state and federal taxes could apply to recipients of assets. In some cases, the creation of one or more trusts could enable the client to transfer properties and other assets to heirs while limiting exposure to tax obligations. Once the client decides on a strategy, the attorney could prepare the paperwork and connect the person with a trust administrator.


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