A QPRT Could Be The Solution

The estate tax is repealed for 2010, but when it was last in effect back in 2009, the exclusion was $3.5 million. The exclusion stood at $2 million from 2006 through 2008. In 2011 the estate tax exclusion is going to be just $1 million, so a lot of estates that had been under the exclusion for years are now going to be exposed to the estate tax.
Home ownership has long been the foundational wealth building vehicle in the United Estates, and many of the people who are now going to be exposed to the estate tax would say that the worth of their homes is what is causing the overall value of their estates to exceed the $1 million estate tax exclusion. For these individuals, an instrument known as a qualified personal residence trust, or QPRT, may provide the solution.
To implement this estate planning strategy you place your home into a special trust trust and you name your children, or whoever it is that you want to leave the property to, as the beneficiaries. When you are drawing up the trust agreement you state a term during which you will continue to live in the house rent free. Upon tranfer to the trust, the value of the home is removed from your estate and your children will assume ownership of the property after the term expires, at which time you would begin paying rent to live in the home.
The funding of the trust with the house is subject to the gift tax, but the IRS does not use the fair market value of the home at that time to calculate its taxable value. They reduce the value of the home by the interest that you are retaining while you are still living in it rent free after you placed it in the trust. Assuming the value of your home appreciates at a reasonable rate moving forward (say, 3%), this techniques can provide a fair amount of gift and estate tax planning leverage.
Feel free to contact our office if you would like a consultation on how a QPRT may benefit you.

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Gerald M. Dorn, Estate Planning Attorney

Gerald Dorn is a shareholder and has been a partner at Anderson, Dorn & Rader, Ltd. Since 1998. Mr. Dorn has extensive experience serving wealthy families and business owners in the development of estate, tax and asset protection planning strategies. He made the decision to focus his practice in the area of estate planning after witnessing the personal grief and financial loss suffered by several of his clients as a result of poor planning. These experiences motivated him to dedicate his professional life to assisting his clients to preserve their life’s work for their heirs and to create a lasting legacy for those they love. Mr. Dorn is able to accomplish his mission through the use of a vast number of estate planning tools, both basic and advanced, for all of his clients at Anderson, Dorn & Rader, Ltd.

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