Qualified Personal Residence Trusts
For many people, their primary residence is one of their biggest lifetime investments. It might constitute a large part of their estate and a large part of the inheritance that they intend to pass to their children. Accordingly, many people have two concerns when it comes to their primary residence. They are concerned both with protecting their home for their heirs and with minimizing the tax implications on their residence. A qualified personal residence trust is a relatively new way of being able to achieve these goals.
The Benefits of a Qualified Personal Residence Trust
Qualified Personal Residence Trusts offer many benefits to both the current owners of the home and the heirs who will inherit the home. If a homeowner decides to establish a qualified personal residence trust then he or she will put the home into a trust for the benefit of whomever he or she wants to inherit the property. During the term of the trust, the owner will be able to live in the house rent free so long as he or she continues to pay all the expenses of the home, including the real estate taxes. Thus, the homeowner retains right to live in his or her home and the people who will inherit the home are not burdened with taxes or other expenses at a time when they are not using the home.
How to Establish a Qualified Personal Residence Trust
Since a home is such a large asset, it is important to work with a trusted estate planning attorney when developing your qualified personal residence trust. Each trust should:
- transfer title of the home into the trust;
- set a defined period (for example 8 years) during which the creator of the trust may live in the home rent free while paying all expenses;
- if the creator of the trust wishes to live in the home after the defined period then he or she must pay a fair market rent to the owners of the home.
Since the home is in a trust, the creator of the trust will not need to pay estate taxes on the property. The creator of the trust will, however, need to pay gift tax on the trust assets if the amount of the gift exceeds the amount exempt from gift tax. The value of the home that is subject to gift tax may be considerably less than the fair market value of the home because of the interest that the creator of the trust is maintaining in the home. It is important to note that if the creator of the trust dies while he is still living in the house rent free and before the home passes to the heirs then the value of the home may be included in his estate.
A qualified personal residence trust provides some very real benefits for families. In order to recognize these benefits, however, it is important to consult with an estate planning attorney when preparing your trust documents to make sure they comply with all applicable laws.
Search LawInfo's Real Estate Resources
Additional Real Estate Articles
Put A Lid On It!! Neighbors, Noise and How to Alleviate the Nuisance
Do you have noisy neighbors ? Does it interfere with your sanctuary at home? Do you wonder if it will ever stop? If you are currently in a situation where … More
What are 'Acts of God' clauses in insurance policies?
Traditionally, homeowner’s insurance policies have contained an exclusion clause for damages caused by “acts of God”, a catch-all term that covers … More
What is the Real Estate Settlement Procedures Act (RESPA)?
RESPA is a federal regulation that governs certain aspects of the closing and settlement process in a real estate transaction. Designed to protect consumers who … More
Buying a Home
Buying a home is a big step in everyone’s life, and for many people, obtaining a mortgage loan in order to buy a home is the most significant debt that they … More
Making an Offer to Purchase...With Contingencies
It is exciting to find a home that you want to purchase. You may walk through the home and admire the floor plan, the architecture, or the style of the home and … More
What You Need to Know About Your Home Inspection
Before you purchase a home it is important to have a thorough inspection done by a qualified home inspector. You might think that you’ve found the right … More
How to Obtain Homeowners Insurance
A home is a big investment both for you as the buyer and for the bank that has your mortgage. Most mortgage providers will not loan you money unless you insure … More
Property is often bought and sold for business purposes. It makes sense, from a public policy perspective, to encourage the buying and selling of property so … More
Sharing Your Property With Tenants
If you are lucky enough to own a piece of property that has a backhouse, cottage or granny flat on it then you may wish to rent that structure out for additional … More
Installing a Fence Can be a Good Legal Strategy
You’ve heard that common saying – that good fences make good neighbors? Well, it turns out that the saying is true and for more reasons than the … More
Real Estate Sub-categories
Property Development and Construction
|Real Estate Short Sales|