Qualified Personal Residence Trust – QPRT

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.

BREAKING DOWN '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. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  2. Grantor Trust Rules

    Guidelines that state a trust is considered to be a grantor trust ...
  3. Irrevocable Income-Only Trust - ...

    A type of living trust often used for Medicaid planning. It protects ...
  4. Grantor Retained Annuity Trust ...

    An estate planning technique that minimizes the tax liability ...
  5. Revocable Trust

    A trust whereby provisions can be altered or canceled dependent ...
  6. Charitable Lead Trust

    A trust designed to reduce beneficiaries' taxable income by first ...
Related Articles
  1. Retirement

    Pick The Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  2. Financial Advisor

    Tax-Efficient Wealth Transfer

    Taxpayers with large taxable estates were required to take steps to reduce them before 2011.
  3. Financial Advisor

    Advisors: Tips for When to Employ Living Trusts

    Revocable living trusts accomplish estate planning objectives that aren't possible with a will. Here are some of the cases that show when to use a trust.
  4. Financial Advisor

    When to Trust a Revocable Trust

    Unsure of how your assets will be dispersed once you're gone? Here's how setting up a revocable trust while you're here can be a big benefit.
  5. Retirement

    Establishing A Revocable Living Trust

    This arrangement allows you to have more control over your estate - both before and after your death.
  6. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  7. Retirement

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  8. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
  9. Retirement

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex; here's what you'll need to discuss with your lawyer.
  10. Retirement

    Understanding Revocable Trusts

    A revocable trust is a legal arrangement whereby a grantor transfers property to a trustee who holds the property in trust for the grantor’s benefit.
RELATED FAQS
  1. What percentage of withdrawals from a trust fund is taxed?

    I have inherited a trust fund. This is the first time I have considered pulling money from the account.  ... Read Answer >>
  2. How does the trust maker transfer funds into a revocable trust?

    Learn how revocable living trusts are established, how the trust maker transfers funds into the trust, and the advantages ... Read Answer >>
  3. 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 ... Read Answer >>
  4. 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 ... Read Answer >>
  5. What is the difference between a revocable trust and an irrevocable trust?

    Find out more about irrevocable trusts, revocable trusts and the main differences between them. Read Answer >>
  6. How does a revocable trust become a split-interest trust?

    Learn how a revocable trust becomes a split-interest trust upon the death of the of the grantor when there are both charitable ... Read Answer >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center