What Is A Qualified Personal Residence Trust?

QPRT Trust - Qualified Personal Residence Trust - Personal Residence Trust - What Is A QPRT

What is a Qualified Personal Residence Trust? 

In this article, you’ll learn about: 

  • what a QPRT is
  • their benefits and purpose
  • how to set one up
  • how to be eligible to use one
  • the risks and limitations of them
  • how they compare to other types of trusts

Let’s dig in.

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What Is A Qualified Personal Residence Trust?

A Qualified Personal Residence Trust, or QPRT, is a unique type of trust

It lets you transfer your primary residence or vacation home to an irrevocable trust while retaining the right to live there for a specified term. 

The Internal Revenue Service (IRS) provides specific rules and guidelines for setting up a QPRT. 

This arrangement is beneficial because it helps reduce your taxable estate.

Purpose And Benefits Of A QPRT

The main purpose of a QPRT is to reduce the amount of estate tax your heirs will need to pay upon your passing. 

This is achieved by removing the value of your home from your taxable estate.

When you transfer your home into the QPRT, it’s considered a gift. 

This gift can potentially fall under the annual gift tax exclusion, meaning it might not be taxable.

During the term of the QPRT, you have the right to live in your home. 

You maintain control over it, even though it technically belongs to the trust.

Finally, a QPRT can help preserve wealth for your heirs. 

When the QPRT term ends, the house goes to the designated beneficiaries tax-free.

Or, if you choose, it can remain in trust for their benefit.

Read More: How Much Money Can You Inherit Without Paying Taxes On It?

Setting Up A Qualified Personal Residence Trust


Setting up a Qualified Personal Residence Trust (QPRT) involves:

  • assessing your eligibility
  • understanding the types of residences that qualify
  • taking necessary steps under the guidance of a trust attorney

QPRT Rules For Eligibility

Anyone who owns a residence can create a QPRT. 

However, people who stand to benefit the most often have estates that are likely to face estate taxes. 

The types of residences that qualify for a QPRT include:

  • your primary residence 
  • a secondary residence (i.e., a vacation home)

You cannot place rental or investment properties into a QPRT.

Read More: Distribution Of Irrevocable Trust Assets To Beneficiaries

How To Set Up A QPRT

  1. Choose Your Trustee: Select an individual or institution that will manage the trust. This could be an adult child, a trusted friend, or a trust lawyer.
  2. Define The Term: Decide on the length of the trust term, the period during which you’ll retain the right to live in the home rent-free.
  3. Prepare The Trust Document: An estate attorney drafts the QPRT document, outlining the terms, the trustee, and the remainder beneficiaries.
  4. Sign And Notarize The Document: You, as the grantor, sign the document in the presence of a notary public to make it legally binding.
  5. Transfer The Residence To The Trust: The deed of the house is retitled in the name of the QPRT, formally moving the property into the trust.
  6. File A Gift Tax Return: A gift tax return (Form 709) is filed in the year following the transfer, declaring the value of the gift to the trust.

How A QPRT Works

During the term of the QPRT, the grantor retains the right to live in the property. 

The grantor also maintains the responsibility for:

  • upkeep
  • taxes
  • insurance on the home

The QPRT term is a specified number of years that the grantor chooses. 

Throughout this period, the trust technically owns the home, not the grantor.

At the end of the QPRT term, several outcomes are possible:

  • If the grantor survives the QPRT term: The property transfers to the beneficiaries, often the grantor’s children, outright or in trust. The transfer happens without any additional gift tax. From this point forward, the grantor may lease the property back if they wish to continue living there.
  • If the grantor does not survive the QPRT term: The property usually returns to the grantor’s estate. It is as if the QPRT was never established. The property may be subject to estate tax depending upon the overall value of the estate.

Understanding these outcomes can help individuals in making informed decisions when considering the creation of a QPRT.

Read More: Do I Need A Trust To Avoid Probate

Risks And Limitations Of A Qualified Personal Residence Trust

Let’s look at the risks and limitations of a QPRT. 

Risks Of A QPRT

Setting up a Qualified Personal Residence Trust (QPRT) can hold potential risks. 

One significant risk involves the grantor’s lifespan. 

The IRS sets the term of the trust based on the grantor’s life expectancy. 

If the grantor does not outlive this term, the property returns to the estate. 

It then becomes subject to estate taxes, which can be substantial.

Another risk is the potential for change in property value. 

If the home’s value decreases significantly, the benefits of a QPRT may diminish. 

The grantor would have essentially locked the property in a trust without reaping the expected estate tax benefits.

Read More: Who Needs A Trust Instead Of A Will?

Limitations Of A QPRT

The limitations of a QPRT primarily revolve around:

  • the types of property that you can place into the trust 
  • the inability to make changes once the trust is established

Only a primary or secondary residence can be placed into a QPRT. 

You cannot place commercial property, rental property, or undeveloped land into a QPRT.

Once the QPRT is established, making changes becomes difficult. 

The terms of the trust are generally irrevocable. 

That means you cannot easily:

  • change the length of the trust
  • transfer the property out of the trust
  • change the eventual beneficiaries

Additionally, the grantor must outlive the term of the QPRT. 

If not, the property reverts to the taxable estate, limiting the estate planning benefits.

Read More: Who Owns The Property In An Irrevocable Trust

QPRT vs Other Trusts And Estate Planning Tools

Let’s look at how a QPRT compares to other types of trusts and its role in a broader estate plan.

Comparison With Other Trusts

A QPRT is a specific type of irrevocable trust that holds a person’s primary or secondary residence. 

It’s unique because it can significantly reduce estate and gift taxes upon transferring home ownership.

Comparatively, revocable trusts, also known as living trusts, are flexible and allow you to maintain control of your assets.

But they do not offer the same tax benefits as a QPRT.

Irrevocable trusts, on the other hand, do provide substantial tax benefits.

But they’re not limited to holding residences. 

They’re often more complex to set up than QPRTs, but their broad scope makes them more versatile.

In essence, a QPRT is advantageous when:

  • your goal is to pass on your home to your heirs while minimizing estate and gift taxes
  • you’re comfortable with the lack of flexibility that comes with an irrevocable trust

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

Role In An Overall Estate Plan

A QPRT can be an essential part of a comprehensive estate plan.

Especially if your estate significantly exceeds the federal estate tax exemption amount.

In such a case, a QPRT can help reduce your taxable estate by removing the value of your home or a second residence from your estate. 

This can significantly reduce the estate taxes that your heirs might otherwise have to pay.

However, it’s crucial to remember that a QPRT is just one tool in the estate planning toolbox. 

Depending on your circumstances, you might also consider other tools such as:

In short, a QPRT can be an effective tool for:

  • reducing estate taxes 
  • passing on your home to your heirs

It is most effective when used as part of a broader, well-thought-out estate plan.

Read More: Does A Revocable Trust Become Irrevocable Upon Death

Legal And Regulatory Developments Of QPRTs

The IRS continually adjusts and refines its stance on QPRTs. 

One notable recent change is increased scrutiny of the ‘lived-in’ condition. 

The IRS now requires clear evidence that the grantor uses the property as their primary residence.

In terms of legal precedents, the case of the Estate of Gribauskas vs. Commissioner set a precedent. 

It emphasizes the importance of carefully defining the ‘remainder interest’ in the QPRT document.

This helps avoid the ambiguity that may attract IRS attention.

Read More: How To Set Up A Trust Fund For A Child


If you want help from a trust law firm, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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