Qualified Personal Residence Trust (QPRT)

A qualified personal residence trust (QPRT) is an irrevocable trust designed to remove a personal residence from the grantor’s taxable estate while allowing the grantor to live in the home for a specified term. By retaining a temporary right to occupy the property (a “retained interest”), the grantor reduces the taxable gift’s value that is transferred to the remainder beneficiaries, potentially lowering gift taxes.

Key takeaways

QPRT is an irrevocable trust used to transfer a residence to beneficiaries at a reduced gift-tax value.
The retained-occupation period determines the gift’s present value, calculated using IRS applicable federal rates (AFRs).
If the grantor dies before the trust term ends, the property is included in the estate and tax benefits are lost.
Appreciation after the trust is established generally passes to beneficiaries free of additional gift tax if the grantor survives the term.

How a QPRT works

The grantor transfers their residence into a QPRT and reserves the right to live in it for a fixed term (e.g., 10 or 15 years).
The IRS AFRs are used to calculate the present value of the grantor’s retained interest. The remainder value (the portion passing to beneficiaries) is treated as a taxable gift equal to the home’s fair market value minus the retained interest.
Gift tax is paid, if required, on the calculated remainder interest; gift-tax liability can be reduced or offset by the unified (lifetime) gift and estate tax credit.
If the grantor survives the trust term, legal ownership passes to the beneficiaries; the grantor may then leave, or arrange a lease to remain. Any appreciation after the transfer typically passes to the beneficiaries without additional gift tax.
If the grantor dies before the term ends, the property is pulled back into the grantor’s estate and is subject to estate tax.

Example

A homeowner creates a 10-year QPRT for a house valued at $500,000. Ten years later the home is worth $750,000. If the grantor survives the 10-year term, the $250,000 of post-transfer appreciation passes to the beneficiary without additional gift tax. The taxable gift was based on the home’s value less the retained interest at the time of the transfer.

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Benefits

Shifts future appreciation out of the grantor’s estate, potentially reducing estate tax.
Lowers the taxable gift amount by valuing the retained interest using AFRs.
Allows the grantor to continue living in the home during the trust term.

Risks and limitations

Survival requirement — the grantor must outlive the trust term for tax benefits to apply.
Reduced flexibility — the trust is irrevocable; terms can be difficult to change.
Post-term occupancy — the grantor no longer owns the home after the term; staying on may require a lease.
Complications — issues can arise with adjoining land, selling the home during the term, or other property changes.
Potential income- and basis-related consequences — consult a tax advisor about income tax and basis implications after transfer.

When a QPRT is useful

QPRTs are most useful when:
* The grantor expects to live past the trust term, and
Significant future appreciation of the residence is likely, and
The goal is to shift wealth to heirs while minimizing gift/estate tax exposure.

Alternatives and related trusts

Bare trust — beneficiary has absolute rights to trust assets.
Charitable remainder trust (CRAT/CRUT) — income paid to noncharitable beneficiaries with the remainder going to charity; may provide income tax deductions.

Practical steps and considerations

Consult an estate planning attorney and tax advisor to determine appropriateness and structure.
Decide the term length balancing gift-tax reduction against survival risk.
Prepare the trust document, transfer title to the trust, and file any required gift-tax returns.
Plan for what happens at term end (move, lease agreement, or other arrangements).

Bottom line

A QPRT can be an effective strategy to transfer a personal residence to heirs while reducing gift and estate taxes, but it requires careful planning and a realistic assessment of life expectancy, trust term length, and long-term goals. Consult professional legal and tax advisors before creating a QPRT.