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. Managing Wealth

    Pick The Perfect Trust

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

    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. Investing

    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. Managing Wealth

    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. Managing Wealth

    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. Managing Wealth

    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. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center