If you own real estate, then you might consider a qualified personal residence trust as the vehicle for passing that property on to children or other heirs. A QPRT can help you reduce the amount of gift or estate taxes you or your heirs might end up paying.
In the simplest terms, the QPRT works like this: You place a piece of real estate into the trust. When done correctly, it removes that property from your estate, so the value of the property is not included toward the total value of your estate. If your home or other property would have put you over the federal estate tax threshold, the QPRT might help you bring yourself back under that threshold.
At the same time, the QPRT lets you transfer the ownership of the property to your heirs at a later date at a substantial discount on gift tax value. For example, one couple placed a vacation home and their primary residence in separate QPRTs. In 2009, when they did this, the properties were worth $4.9 million. According to how the trusts were created, the properties will transfer to heirs in 2028 with a gift tax value under $1.2 million — that reflects a substantial savings.
Obviously, such arrangements take years to come to fruition, so you have to plan ahead very well to make it work for you. Anytime you are seeking to place property in a trust to avoid probate matters or taxes, it’s a good idea to work with an experienced estate law professional. A professional can ensure you understand all the details and how your decisions might impact you and your heirs in the future.
Source: Barron’s, “Holding Vacation Homes In a Trust Can Help Heirs,” Matt Miller, Nov. 04, 2016