Orsbon & Fenninger, LLP

Estate Planning and Estate Administration

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Elements of a qualified personal residence trust

North Carolina homeowners who are creating an estate plan might wonder they should set up a qualified personal residence trust. The purpose of a QPRT is to transfer a home to a beneficiary for less than the home's full value. This is done by creating two separate interests. The income interest is the right of the grantor to live in the home for a certain number of years or until death. The reversion interest is the right of the beneficiary to get the house if the person dies before the set amount of time. The remainder interest is the beneficiary's right to the house at the end of the fixed term.

These interests have a value, and the value is based on the fixed term along with the interest rate and the age of the grantor when the trust is funded. One difficulty with a QPRT is that if the grantor dies before the end of the fixed term, the estate will include the entire value of the house. Therefore, it is necessary to determine the optimal fixed term.

This can be tricky because the trust is worth more if the fixed term is longer. However, there is a greater risk that the grantor will die at some point in a 20-year period compared to over 10 years.

There are a number of other complications with the QPRT and other types of trusts. For this reason, people who are creating an estate plan might want to discuss their needs with an attorney. The attorney might be able to suggest effective strategies based on those needs that the clients may not have considered. For example, there might be other strategies for reducing the value of an estate such as gifting to loved ones and charitable giving.

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