Qualified Personal Residence Trust – QPRT

AAA

DEFINITION of 'Qualified Personal Residence Trust – QPRT '

A specific type of trust that allows its creator to remove a personal home from his or her estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary. Qualified Personal Residence Trusts allow for the owner of the residence to remain living on the property for a period of time with 'retained interest' (by and large greater than 0%) in the house; once that period is over, the interest remaining in the premises is transferred to the beneficiaries as 'remainder interest.'

Depending on the length of the trust, the value of the property during the retained interest period is calculated based on Applicable Federal Rates provided by the IRS. Because a fraction of the value is retained by the owner, the gift value of the property is lower than its fair market value, thus lowering its incurred gift tax. This tax can also be lowered with a unified credit.

INVESTOPEDIA EXPLAINS 'Qualified Personal Residence Trust – QPRT '

Generally speaking, a QPRT is useful when the trust expires prior to the death of the grantor. If the grantor dies before the term, the property is included in the estate and is subject to tax. The risk lies in determining the length of the trust agreement coupled with the likelihood that the grantor will pass away before the expiration date. Theoretically, longer-term trusts benefit from smaller remainder interest given to the beneficiaries, which in turn reduces the gift tax; however, this is only advantageous to younger trust holders who have a lower possibility of passing away prior to the trust end date.

RELATED TERMS
  1. Beneficiary Of Trust

    A beneficiary of trust is a person for whom a trust was created, ...
  2. Inter-Vivos Trust

    A fiduciary relationship used in estate planning that is created ...
  3. Gift Tax

    A federal tax applied to an individual giving anything of value ...
  4. Testamentary Trust

    A legal and fiduciary relationship created through explicit instructions ...
  5. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  6. Gift

    Property, money or assets that one person transfers to another ...
Related Articles
  1. Professionals

    Estate Planning Tips for Financial Advisors

    Estate planning is not a set-it-and-forget-it proposition. Here are some tips for you and your clients.
  2. Personal Finance

    What's an Irrevocable Trust?

    In an irrevocable trust, the grantor gives up the right to revise, amend or terminate the trust without the permission of the beneficiary. An irrevocable trust is best used as an estate-planning ...
  3. Personal Finance

    Agency Theory

    An agency relationship exists when one person -- called a principal -- hires another person -- the agent -- to act on his behalf. Agency theory is concerned with resolving problems that develop ...
  4. Chart Advisor

    Short-Term Silver Bottom? Mining Stocks Think So

    Breakouts to the upside in a number of silver mining stocks could foretell a break higher in silver itself.
  5. Chart Advisor

    Strategy Based ETFs to Consider in 2015

    Let ETF managers do the work for you. These ETFs replicate investment strategies, indexes and funds attempting to outperform performance benchmarks.
  6. Personal Finance

    What's a Trust Fund?

    A trust fund is a fund comprised of a variety of assets, established by a grantor, to provide financial security to an individual, most often a child or grandchild - or organizations, such as ...
  7. Investing Basics

    How Advisors Can Protect Inherited IRAs

    A new Supreme Court ruling has some financial advisors rushing to set up trusts to help protect inherited IRAs. Is that necessary?
  8. Personal Finance

    Top 10 Money Mistakes New Parents Make

    Although having a child is an exciting and exhilarating experience, it is very easy to lose track of finance or make unwise decisions with money.
  9. Retirement

    Should You Convert Your IRA?

    Discover the factors you must weigh to make this decision.
  10. Home & Auto

    Why Your Will Should Name Designated Beneficiaries

    Find out how to make the tough decisions when it comes to choosing who will receive your assets and how they will be paid out.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center