One type of trust which is common in
estate planning is the Qualified Personal Residency Trust. Under this trust agreement,
a couple can make a gift of their home to their children by placing it
within an irrevocable trust. You have the ability to stay in the residence
rent free for what is called the "retained income period." At
the end of this period, the property will be transferred to your children
and you will need to pay fair market rent in order to continue to live
within the residence. These rental payments can act to further decrease
the value of an individual's taxable estate.
The trust, if properly drafted, will decrease the value of the taxable
gift made to your children and exclude any future appreciation of the
residence from your taxable estate. This trust can be utilized in a strong
real estate market with rising home prices to decrease the size of an
individual's taxable estate and transfer any appreciation in value
tax-free to the next generation. Certain consideration should be taken
into effect prior to attempting to implement this estate planning technique.
First, it is an irrevocable trust, so once created, it cannot be changed
Second, after the retained income period, rental payments will be due in
the amount of the fair market value in order to stay in the residence.
Finally, an individual must take careful consideration of the costs involved
to implement this strategy. Since the transfer of ownership of the personal
residence to the trust is considered a gift, an appraisal of the residence
must be performed in order to report that amount to the IRS. Additional
fees, such as those for creation and maintenance of the trust and filing
of pertinent tax forms will also need to be expensed.
If you would like additional information whether this estate planning technique
is proper for your estate, please
contact our office for a consult.