Scranton Qualified Personal Residence Trusts Lawyer
A qualified personal residence trust (QPRT) is a specialized type of trust that lets the creator remove their personal home from their estate as a way of decreasing the amount of gift tax incurred when the asset is transferred to a beneficiary. The home owner is allowed to remain living in the house for a period of time with “retained interest” in the home. Once the time period is up, the remaining interest will be transferred to the trust’s beneficiaries as the “remainder interest.” Depending on how long the trust is set for, the property’s value during the retained interest timeframe will be calculated using the IRS applicable federal rates. Since the owner is retaining a portion of the property’s value, the gift tax will be lower than the fair market value. This is what lowers the incurred gift tax. With such a complex area of the law, you need expert assistance. Call the Scranton qualified personal residence trust lawyers at Haggerty Hinton & Cosgrove LLP for help.
Who Benefits from a Qualified Personal Residence Trust?
This type of trust can be beneficial if the trust expires prior to the grantor’s death. In the event the grantor dies before the term of the trust is over, the property will be included in the grantor’s estate and therefore subject to tax. There is a risk is trying to determine the trust’s length, combined with likelihood that the grantor could pass away before the trust expires.
In theory, longer-term trusts benefit more from smaller remainder interest transferred to the beneficiaries, which reduces the gift tax. This benefit is really only an advantage for younger trust holders who are at a lower risk of passing away before the trust ends.
Potential Pros and Cons of Qualified Personal Residence Trusts
There are a potential number of pros and cons to using qualified personal residence trusts. Some of the benefits can include:
- The homeowner is allowed to live in the home and receive tax benefits.
- A QPRT removes the value of your primary or secondary home, along with future appreciation, from the taxable estate, or includes it at basically cents on the dollar.
- It allows you to pass the home to your heirs in a way that encourages them to keep it long term, thereby creating a legacy for your family.
- It protects against possible decreases in lifetime estate tax and gift tax exemptions.
- Paying rent when the retained income period ends will help reduce your taxable estate even more.
Some of the potential negative sides or risks associations with qualified personal residence trusts can include:
- Your heirs inherit the residence with your income tax basis at the time it was gifted into the qualified personal residence trust.
- Homes owned by a QPRT can be difficult to sell.
- The entire trust transaction will be undone if you die prior to the retained income period ending.
- You could lose property tax benefits once the retained income period ends.
- You will need to pay rent after the retained income period ends.
- Grantor cannot repurchase the home at the end of the initial term.
Retaining a Pennsylvania Estate Planning Attorney
If you have questions on qualified personal residence trusts or any other estate planning tools, it’s important to speak with a skilledPennsylvania estate planning attorney. Contact Haggerty Hinton & Cosgrove LLPat 570-344-9845 to schedule a consultation. Let one of our skilled attorneys help with all your estate planning needs.