Qualified Personal Residence Trust (QPRT)

QPRT  definition 

A very concise definition of a Qualified Personal Residence Trust:  This is an Estate Tax Planning device where a person transfers that person's personal residence to Beneficiaries, in trust on terms that meet the Internal Revenue Code specifications, for a term of years.  During this term of years, the Person retains the use of the property as a personal residence.  At the end of the term the property is transferred to the beneficiaries (remaindermen).  For Income Tax purposes the property owner continues to pay all expenses and claims the usual deductions of interest and taxes during the term of the trust.  For Gift Tax purposes, the value of the gift is calculated at the time the trust is created and is the actuarially calculated value of the remainder interest of the residence as of the the end of the term of the trust.  If the donor dies after the term of the trust has ended, the residence is excluded from the taxable estate of the donor for Estate Tax purposes.  If he donor dies before the term of the trust has ended, the value of the residence is included in the donor's estate for Estate Tax Purposes.

Documents Required

  1. Copy of Deed to Personal Residence
  2. Copy of Promissory Note
  3. Copy of Security Deed

Preparatory Actions Required by Grantor

  1. Obtain Appraisal of Personal Residence
  2. Obtain Appraisal of Fractional Interest in Personal Residence

Required Accounting Facts for Calculations

  1. Value of Residence _$_________________
  2. Age of Donor _________    Date of Birth _________  __ , _______
  3. Existing Mortgage Amount $_____________
    1. Is Grantor Personally Liable for payment of the note (Recourse) ___ YES      ___ NO
      1. If YES, (full value of property is use)
      2. If NO, (full value less mortgage balance is used) Does Grantor wish to make estate liable?  ___ YES      ___ NO
  4. Remaindermen Names, Addresses, Telephone numbers, Social Security Numbers, Ages

Look Up Information

  1. Applicable Federal Rates (Current and prior 2 months)
  2. Life Expectancy of Donor

Calulations Required

  1. Remainder Value
  2. Reversionary Interest % (if greater than 5% then this is a Grantor Trust)

Drafting Information

  1. Trustee _________________________ and Successor Trustee ________________________
  2. Successor Trustee(s) Name and Address and SSN
  3. Personal Residence Address

Document Preparation List

  1. Decide Specific Terms of Trust, ie:
    1. Who is the Grantor(s)
    2. Who is the Remainderman(men)
    3. Who is the Trustee(s)
    4. Term of Trust in Years
    5. Does Grantor want to pay off mortgage prior to creation of Trust?
  2. Draft Trust Agreement
  3. Draft Deed to transfer Personal Residence to the Trust
  4. Prepare Form 709 Gift Tax Return (additional annual 709s required if non-recourse mortgage)

Post Preparation Work Required

  1.     Educate Family Members

Recommendations

  1. Do not put additional cash in the trust.
  2. Do not transfer the Personal Residence out of the Trust