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. Testamentary Trust

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

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

    A federal tax applied to an individual giving anything of value ...
  5. Inter-Vivos Trust

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

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

    Can trust funds be activated before the grantor intended?

    Trust law gives the grantor specific rights over the release of assets and therefore it is not possible to change the stipulations without his or her consent.
  2. Retirement

    What are the keys to setting up a trust fund?

    Setting up a trust to secure your assets for a beneficiary allows you to set the terms under which the beneficiaries are allowed to access these assets.
  3. Investing Basics

    What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions and trading expenses.
  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. Taxes

    How are trust fund earnings taxed?

    Trust fund earnings that are distributed are paid by the beneficiary. The trust pays taxes on retained earnings and principal increases.
  6. 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.
  7. 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 ...
  8. 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?
  9. Retirement

    What's the difference between a financial advisor and a financial planner?

    Seeking professional advice from a financial advisor may involve asking for financial help from a certified financial planner, stockbroker or an accountant.
  10. 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.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center