A common problem for estate planners is "What to do with an individual's home?" The answer, for some, may be a Qualified Personal Residence Trust (QPRT).

Creating a succession plan requires business owners to make a commitment to estate planning. A common planning issue for those families that have multiple housing is how to minimize or avoid estate taxes on the their residences. In 1990, Congress provided a partial solution with the QPRT.

This residence trust allows an owner and spouse to give one, two, or even three homes at greatly reduced gift and estate tax costs and, at the same time, shift future appreciation in the home to their beneficiaries. The best part is that the parents are able to continue living in their home(s) as long as they wish.

To utilize this benefit, a trust must be established which includes a clause that requires the parent to outlive the trust term. If the parent does not survive the end of the trust, the gifted home is returned to the parents' estate and included in their overall tax obligations.

The potential tax savings, however, are significant. For example, if a donor at age 60, in the 55% tax bracket, establishes a QPRT with a home valued at $500,000, the savings amounts to about $350,000. This calculation assumes a trust term of 15 years with an annual appreciation of 3%. If the parents happen to have a vacation home in one of the "hot" areas (i.e. Wimberley, TX, Telluride, CO, Jackson Hole, WY) that is experiencing rapid appreciation and growth, the savings are potentially even greater. A bonus feature of this trust allows the parent to continue realizing the income tax benefits of home ownership by deducting real estate taxes and mortgage interest.

Establishing a residence trust is a relatively straight forward and simple legal process. Most attorneys are familiar with residence trusts, and if yours is not, any estate planning and succession attorney will know what to do. (If not, find a new attorney.) The cost will range from around $2,000 to $4,000, possibly higher in some areas and for more complex estates.

Although the residence trust sounds like a sure winner, be careful not to isolate this one opportunity without considering your entire estate. Minimizing tax burdens requires a comprehensive review and clear objectives. If, however, one of your objectives is to continue enjoying your personal residence while reducing estate taxes, then a Qualified Personal Residence Trust is an excellent option.

If you would like more written information on Qualified Personal Residence Trusts, put QPRT on the Boomerang Card and return it to ReGENERATION Partners.