There are a myriad of estate planning tools that can help protect your real estate assets. Warm weather states like Florida are a mecca for second homes and investment properties. Unfortunately, these occasional homes become part of a person’s taxable estate when they die. The Qualified Personal Residential Trust (QPRT) is a unique estate planning tool that provides a solution for this concern. A QPRT is an estate planning technique which is provided for under US Treasury Regulation Section 25.2702-5(c)(2). The regulation allows for the creation of a QPRT for a primary residence and a secondary residence.
The concept behind the QPRT is less confusing than its name implies. Simply put, the QPRT operates as follows:
- An individual transfers the title of a property to the trust (QPRT).
- The individual sets up a pre-determined amount of time to continue living in the residence.
- The owner of the home (who is now called the grantor) pays the expenses associated with the residence such as homeowners’ association fees, taxes, and expenses; however he does not pay rent.
- When the pre-determined time is over, if the grantor is still alive, he may remain in the home and pay his children rent which should reflect an amount that would be paid in a similar situation.
- If the grantor dies, the home will pass to the children either without estate taxes or with significantly reduced estate taxes based upon the appreciated value of the home.
Due to the complex tax code we all endure, it is important to discuss this option with both a trust attorney and CPA. Specifically, there is a gift tax exemption ceiling which could affect the amount of estate tax that will ultimately have to be paid by the children. However, even if the house appreciates significantly, the children will benefit from a substantially lower estate tax than they would have paid if they inherited the property through traditional means like a will. This discount occurs because the taxable value of the house is lowered due to the grantor living in the house. Therefore, this unique tool should always be considered when considering your estate plan if you happen to own a second home.
For more information on successful Florida estate planning and probate techniques, please contact the South Florida law firm of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at firstname.lastname@example.org to schedule your free consultation. It’s a Wild world. Are you protected?