Bay Area Trust Attorney: Reduce Your Tax Burden with a Qualified Personal Residence Trust

As a Bay Area trust attorney, I know that a family home or vacation property is often the most valuable asset in a person’s estate. While the homeowner may want to leave their cherished property to children or other beneficiaries as an inheritance, taxes can quickly thwart well-meaning plans.

The sad truth is that, without proper planning, most heirs simply cannot afford the tax bills that come along with inheriting valuable property, which will usually force the sale of a beloved family home or vacation property after the homeowner passes away.

Fortunately, there is a legal tool that can help homeowners safely and responsibly pass their property down to loved ones while significantly minimizing the taxes owed by beneficiaries after the owner’s passing.

What is a Qualified Personal Residence Trust?

A Qualified Personal Residence Trust (or QPRT) is an irrevocable trust established by the owner of a residence for the purpose of passing down real property to beneficiaries with greater financial protection and a minimized tax burden.

With the help of an experienced Bay Area trust attorney, ownership of the family property is transferred into the QPRT with the trust giving the parent (or “Grantor”) the right to occupy the property for a certain term of years. When that period ends, the ownership of the residence then passes to beneficiaries. Should the Parent/Grantor still wish to live in the property, he or she may “rent” the property from the beneficiaries at a fair market value.

Who Needs a QPRT?

A QPRT may be right for you and your family if:

• You have a cherished family or vacation home with significant value that you wish to leave to your children or loved ones
• Your children are over age 30 or have otherwise proved their financial maturity (this is important due to the irrevocable nature of the trust)
• You want to make life as easy as possible for your children after your passing by shielding them from unnecessary legal fees and excessive tax bills from the State and IRS.

Benefits of a QPRT

There are many benefits of creating a QPRT for homeowners and future heirs alike, including:

• Significantly reduced tax bills for beneficiaries following the owners’ death
• Protection from the parents’ creditors since the property will be off limits to satisfy debts
• The ability to transfer property responsibly to loved ones when the owner is still living while still retaining the right to live in or use the residence as long as agreed to by the family
• The Grantor stays in complete control of the property as the trustee of the QPRT and retains all the income tax benefits of home ownership, such as property tax deductions and capital gains exclusions.

• If the parent lives longer than the term of the Trust, the residence is not included in his or her estate and substantial taxes are saved.

If you would like to learn more about Qualified Personal Residence Trusts, or if you’d like to have your current QPRT reviewed by an experienced Bay Area trust attorney to make sure it still fits your needs, please contact our Santa Clara law office at (650) 422-3313 to schedule a complimentary initial consultation.