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Happy Thanksgiving - A QPRT Trust for Vacation Homes and Primary Residences


Happy Thanksgiving

Hopefully anyone who is reading this post is up before their family and just getting ready for Thanksgiving Day. Many of you may be at your vacation home, and this is why I thought of this post. A Qualified Personal Residence Trusts or QPRT, is a specialized trust that is designed to hold real estate assets which, after a specific amount of time, may be transferred at a discounted value to children. The transfer reduces the gift tax and takes the property out of the estate. How one Arizona accounting firm helped a couple structure this trust for their primary residence and an out-of-state vacation home provides a lesson in how this works.

Barron’s article, “Holding Vacation Homes in Trust,” observes that the two residences, worth a total of $4.3 million in 2009, can be transferred with the trust at a taxable gift value of less than $1.2 million in fiscal year 2027-28. There are federally-allowed discounts including one for 2.8% a year, for property held jointly in a 19-year trust for the husband and an 18-year trust for the wife.

The advantages of QPRTs include the high level of estate-tax exemptions (almost $11 million for a couple) and the low discount assigned by the IRS. This is a value tied to current interest rates. There are also other options if you want to tax-efficiently transfer real estate, such as an intentionally defective grantor trust or an intra-family loan.

A QPRT can hold a primary or vacation residence. A person may create two separate QPRTs—one for each home. Spouses are allowed to transfer jointly owned homes, but each spouse has to create his or her own QPRT. One can also set up multiple QPRTs for the same property, giving a fractional interest to each child. The trust is irrevocable and the grantors can live in the home during the period of the trust, and they pay property taxes and insurance. They can sell a home, provided they buy another that’s put in the QPRT.

At the end of the period, the beneficiaries or the holding trust own the house, but the grantors can remain in the house as long as they pay fair-market rent. The beneficiaries are responsible for upkeep. But rental and upkeep aren’t the only issues with QPRTs.

QPRTs work best when parents and children understand the positives and negatives involved. A change of plans, like selling the house instead of handing it to the next generation, can lose the benefits. Once the house is in a trust, it cannot be used as personal collateral, and if the children should decide to sell the house, they could be liable for higher capital gains than if the house was simply left to them in a will.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

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Reference: Barron’s (November 4, 2016) “Holding Vacation Homes in Trust”

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