Question

Besides the GRAT, Jim also recommends that Mary transfer her home into a QPRT.

‐ What does QPRT stand for?

‐ A QPRT is a subset of what type of trust

‐ who is the beneficiary of the trust during its intial term?

‐ who is generally the remainderman?

‐ What are the gift tax implications?

‐ What happens if major improvments are made to the home during the term of the QPRT?

‐ What happens to the home at the end of the trust term?

‐ What are the estate tax consequences if Mary dies prior to the termination of the trust term?

Answer 1

1. QPRT stands for Qualified Personal Residence Trust

2. QPRT is a type of irrevocable trust. It is a grantor trust for income tax purposes

3. The donor is the beneficiary of the trust during its intial term. In this case it will be Mary.

4. Generally family members of donor are remaindermen of trust

5. The original transfer of the residence to the QPRT will be treated as a taxable gift of the remainder interest to the remainder beneficiaries. The fair market value of the residence is discounted for gift tax purposes.This gift does not qualify for the annual gift tax exclusion since the transfer of a residence to a QPRT is not a gift of a present interest. The value of the gift for gift tax purposes is based on the present value of the right of the QPRT beneficiaries to receive the residence at the end of the term of years.

6. If Mary makes a major improvement, the cost is treated as an additional gift to the trust and the amount of the taxable gift is based on the fair market value of the improvement, as well as the remaining term of the QPRT.

7. If Mary outlives the term of the trust, the residence passes to the beneficiaries at the end of the term.

8. If Mary dies before the trust term expires, the date-of-death value of the QPRT will be included in Mary’s estate and subject to estate taxes. However, Mary’s estate will receive full credit for any tax consequences of the initial gift to the QPRT and Mary is no worse off than if she had not created the QPRT.