Family homes and other real property are usually the most valuable assets in an estate. While homeowners may want to leave these properties to children or other beneficiaries as part of an inheritance, tax burdens can throw a wrench into those plans.
Unfortunately, without proper planning, most beneficiaries cannot afford the taxes that come along with inheriting property, which usually forces the sale of a family home or other property after the homeowner dies.
Fortunately, there is a trust document that helps homeowners safely and responsibly pass real estate property to loved ones after their passing, while significantly minimizing the taxes owed on the property: A Qualified Personal Residence Trust (or QRPT).
A QPRT is an irrevocable trust established by the owner of a house for the purpose of passing that house to beneficiaries upon death with greater financial protection and a minimized tax burden.
Ownership of the family property is transferred into the QRPT, with the trust granting the parent (or “Grantor”) the right to occupy the home for a certain term of years. When that period ends, the ownership of the residence then moves to beneficiaries. If the Grantor still wants to live in the home, it can be “rented” from the beneficiaries at a fair market value.
However, there are certain considerations to take into account if you’re thinking about using a QRPT to pass on ownership of a residence. This type of trust will work if:
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- You have a cherished family property with a significant value that you wish to leave as an inheritance;
- Your children are 30 or older and have proven their financial maturity;
- You want to help your children avoid excessive legal fees and tax bills associated with the transfer of real property;
- You want to protect your children from your own creditors;
- You want to transfer your property responsibly to your loved ones while you’re still living while retaining the right to live in or use the residence as long as agreed upon by the family; and
- You’d like to stay in control of the property as the trustee of the QPRT and retain all the income tax benefits of home ownership.
If you would like to learn more about a Qualified Personal Residence Trust, or if you’d like an experienced elder law attorney to review your current QPRT to make sure it still fits your needs, please set up an appointment at our Encino estate planning law office by calling (818) 905-6088.
