Your home is a considerable asset. Yes. You have money in the bank, investments made and valuable possessions, but your home is also a rather significant asset to take into account when deciding how you want to leave your assets to your loved ones.
At the end of the day, the goal is to reduce the tax burden for you and your loved ones. Utilizing a qualified personal residence trust, commonly referred to as a QPRT, is one estate planning tool that allows you to live in your home, while also gifting the home to someone else, such as a child or grandchild. The benefit with a QPRT is that it reduces the size of your estate, which equates to a tax savings.
The basics of a QPRT
By no means are you expected to have an in-depth understanding and knowledge of how a QPRT works. After all, this is what your attorney is for. Rather, that you need to know is that you can give your home away, while still living in it for a certain period of time. After this time period is reached – a time period you pre-determine – the home is then either given to the named person or to a trust.
Additionally, the grantor, is able to deduct real estate taxes paid from yearly income taxes, which is an additional tax-savings benefit.
Setting up time periods for the residence
None of us have a crystal ball to look into the future. The good news, though, is that estate planning lets you not only plan for the future, but a QPRT can take into account the unknown. For example, while you may set up a QPRT for a 5 year time period, if you end up passing away before that time period is up, you do not have to worry. The home would then just be included in your estate.
If, however, you live past the time period, the residence will then transfer to the named beneficiary. The home is then excluded from your estate.
Estate planning to reduce taxes
There are a number of different strategies you may want to employ to reduce taxes, while maintaining your current lifestyle for yourself and your heirs. A qualified personal residence trust is just one of the many estate planning tools that may make sense, given your unique situation.