Qualified Personal Residence Trust
A qualified personal residence trust lets you continue to live in your home but transfer it to your children now so you will save estate taxes when you die.

When you set up a qualified personal residence trust, you transfer your home or vacation home to an irrevocable trust. For a specified period of time (often 10 to 15 years), you retain the right to use and live in the residence. After that time, the residence transfers to your beneficiaries (usually your children).

In effect, you are giving your home to your children today. But because your children will not receive it until sometime in the future, the value of this gift is discounted (reduced). This uses less of your federal gift and estate tax exemption than if you had kept the home (and any future appreciation) in your estate.

If you die before the term of the trust is over, there is no penalty. Your home will just be included in your taxable estate, which is what would happen anyway without the trust. If you live longer than the duration of the trust and want to keep living there, you will have to pay rent (at fair market value).

And, of course, the house will not receive a stepped-up basis when you die. So you will want to see whether it's better for your beneficiaries to save the capital gains taxes or to save the estate taxes.

NOTE: This information is designed to provide a general overview with regard to the subject matter covered and is not state-specific. The authors, publisher and host are not providing legal, accounting or any other advice which purports to be specific to your situation. The contents of this website are believed to be completely reliable. Nevertheless, some material may be affected by changes in the laws or interpretations of such changes since the material was entered on the website. If legal advice or other expert guidance is required, the services of a competent professional in the field of law, accounting, insurance or investments should be sought.

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