© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

Laurie Hall Sounds Off: Everything You Should Know About Qualified Personal Residence Trusts

Terms to Know

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♦ Key terms (and one acronym) you need to know:

♦ Qualified Personal Residence Trusts: QPRT

♦ The Term Interest: The period during which the donor of the QPRT retains the use of the residence held by the QPRT.

♦ The Remainder Interest: This consists of the property that remains at the end of the Term Interest – which will pass to persons other than the donor, such as the donor’s children or a trust for their benefit.

Just the Basics

♦ The creation and funding of a QPRT constitutes a gift equal to the value of the Remainder Interest, which will ultimately pass to persons other than the donor.

♦ The value of the Remainder interest is discounted because enjoyment of the property by the remainder beneficiaries is postponed for the duration of the Term Interest to a time in the future.

♦ The longer the Remainder Interest is postponed, the less valuable it is and the more it’s discounted for gifttax purposes.

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Fast Facts

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♦ QPRTs are irrevocable.

♦ A gift made by way of a QPRT is a taxable gift.♦ There may be no gift tax due if the gift is sheltered by

the donor’s exclusion against federal gift and estate tax.

♦ The value of the house in excess of the taxable gift – plus any appreciation in the property after the QPRT has been establish – will pass tax free at the end of the term.

How To Succeed

♦ A successful QPRT offers the benefit of locking any future appreciation in the property’s value out of the donor’s estate.

♦ QPRTs only work if the donor survives the Term Interest.

♦ If the donor continues to live in the residence after the Term Interest, it is important that the donor rent the property at fair market value.

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The Drawbacks

♦ If the donor does not survive, the value of the QPRT property is added back to the donor’s gross estate for federal estate tax purposes, at its date of death value.

♦ When the property in the trust assumes the donor’s tax basis, there are two considerations:♦ (1) If the property has a low basis and is to be sold after the

Term Interest, the remainder beneficiaries will have to pay tax on the capital gain.

♦ (2) If the property were in the donor’s name upon the donor’s death, it would receive a step-up in basis to its fair market value.

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© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

For more information, contact:

Laurie J. HallEdwards Wildman

Partner+1 617-239-0136

lhall@edwardswildman.comLaurie-Hall.com

Read Laurie’s Full Blog Post on the Topic at:LaurieHallEdwardsWildmanInsight.com