Berman & Asbel, LLP

Advantages and disadvantages of a QPRT

People in Pennsylvania who are concerned about estate tax might consider a qualified personal residence trust. With a QPRT, an individual can arrange for a house to pass to a beneficiary as a gift after a specified period of time. The value of the home will be locked in at a lower rate. A QPRT can lower or nullify gift or estate taxes.

A few rules must be followed when a home is placed in a QPRT. For starters, the property must remain a residence for the duration of the trust. Furthermore, when the term ends, the creator of the trust is required to pay rent to the trust recipients.

A QPRT does have some disadvantages. One is that if the trust creator dies, the residence returns to the estate at its full value. Another is that there might be a significant capital gains tax liability for the beneficiary. These disadvantages must be balanced against the fact that the trust creator can claim a gift value that may be less than half of the property's market value. Furthermore, the home's value is frozen in terms of gift tax.

All adults might want to consider creating an estate plan whether they have few assets or many. An attorney might be able to offer advice on different ways to protect assets. There are a number of other types of trusts that may serve the purposes of an individual. For example, a special needs trust may be a way to support a relative who is incapacitated without affecting the benefits that person receives.

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