Landskind & Ricaforte Law Group, P.C. Discusses QPRTs to Protect Your Home From High Taxes
Qualified personal residence trusts (QPRTs) can help homeowners facilitate a low-tax lifetime transfer of property from themselves to their heirs. However, QPRTs carry a built-in risk, and if certain conditions aren’t met, they almost always have the potential to backfire on grantors. 
Landskind & Ricaforte Law Group, P.C. can help you determine if a QPRT fits into your existing estate plan or could serve as the foundation of a wealth-saving strategy. Here, our experienced estate planning attorneys explain these trusts and why you might need a second opinion before putting your New York City home into a qualified personal residence trust.
A Brief Overview of QPRTs
A QPRT is a type of irrevocable living trust that lets you transfer control of your home to a trust for a set period of time—typically anywhere between five and 20 years. After the trust runs its course, its ownership interest is transferred to an heir or to a set of named beneficiaries.
How the Timeline of a QPRT Helps Save on Taxes
The process of establishing and executing a QPRT usually involves several key steps. For example:
- The person who founds the trust, termed the “trustor” or the “grantor,” drafts and conditions an irrevocable trust agreement. This agreement must meet very specific criteria, which is subject to state law and to the federal tax code.
- Once the trust has been executed, the grantor signs their interest in the home over to the trust, which assumes ownership of the property.
- After the trust re-titles the home in its own name, the grantor may continue living in the home until the trust expires.
- While residing in the home, the grantor will usually make regular payments to the trust—similar to paying rent or a mortgage. But instead of using the payments to operate at a profit, the trust applies them to the property’s outstanding tax liabilities.
- If the grantor is still alive at the time of the trust’s expiration, the trust transfers control of the property to the grantor’s heirs and beneficiaries.
Since the grantor retains an interest in the property for the duration of the trust’s active administration, this retained interest is exempted from the home’s fair-market value and taxable base.
The Advantages of QPRT
If used correctly and in combination with other estate planning tools, a QPRT could provide the following benefits:
- The QPRT can reduce gift taxes for the trustor and any taxes that would be incurred through estate taxes.
- The QPRT allows the grantor to exclude their retained interest in the property from gift tax assessments.
- The grantor retains full and exclusive control of the home for the duration of the trust. If the trust expires while the grantor is still alive, they have the right to remain on-site if the heirs choose to rent the property to them at a fair market rate.
The One Big Drawback of a QPRT
A QPRT serves a very specific purpose. However, that purpose is only fulfilled if the grantor outlives the trust. Since the duration of the trust is determined at the time of its execution, its length is arbitrary and cannot account for the grantor falling ill, passing away at a younger age than expected, or needing to make any changes to the trust.
Deciding if a QPRT Makes Sense for You
A QPRT is a powerful estate planning tool for forward-thinking homeowners who want to keep their property out of probate while protecting themselves and their heirs from the tax liabilities associated with a large lifetime gift. However, establishing a QPRT could have big implications for your estate plan—especially if you haven’t accounted for the possibility of estate taxes or haven’t taken the right steps to keep your other assets out of probate.