QPRT — Qualified Personal Residence Trust
Transfer your home out of your taxable estate at a deeply discounted gift tax value while continuing to live in it for the trust term — locking in a low valuation today and removing all future appreciation from the estate permanently.
A Qualified Personal Residence Trust allows you to transfer your primary residence or vacation home into an irrevocable trust while retaining the right to live in the home for a specified term — typically 5 to 15 years. The gift to the trust is valued not at the home's full fair market value, but at a discounted amount that reflects the fact that you retained the right to use it for years before the heirs can take possession.
The IRS uses actuarial tables to calculate the present value of your retained interest (the right to live in the home during the term). That retained value is subtracted from the home's fair market value — and only the difference is treated as a taxable gift when the trust is funded. For a 55-year-old transferring a $2M home into a 10-year QPRT, the taxable gift might be approximately $800,000 rather than $2M — a $1.2M reduction in the amount of lifetime exemption consumed.
At the end of the term, the home passes to the named beneficiaries — typically children — at no additional gift or estate tax cost, regardless of what the home is worth at that point. All appreciation from the date of funding to the end of the term (and beyond, since the heirs now own it) has occurred outside the taxable estate.
If you die during the trust term, the entire value of the home is pulled back into your taxable estate — as if the trust had never existed. The gift tax return and exemption used are refunded, but the estate tax result is the same as if no planning had been done. The QPRT therefore only works if you outlive the term, making it a strategy better suited to younger transferors with shorter terms and/or excellent health.
After the term expires, if you want to continue living in the home, you must pay fair market rent to the heirs who now own it. This additional rent payment has an estate planning benefit — it further transfers wealth from your estate to your heirs free of gift tax. But it requires a genuine arm's-length rental arrangement documented in writing.
- Transfers the home out of the taxable estate using significantly less lifetime exemption than a direct gift — the actuarial discount typically reduces the taxable gift to 30-50% of fair market value.
- All post-transfer appreciation escapes estate tax — a home worth $2M today worth $5M in 15 years transfers to heirs at no additional tax on the $3M of growth.
- Post-term rent payments further reduce the estate — you are legally required to pay fair market rent after the term, which transfers additional wealth to heirs without gift tax implications.
- Mortality risk — dying during the term pulls the home back into the estate. Term length must balance the discount benefit against the mortality risk given your age and health.
- No step-up in basis at death — because the home is no longer in your estate, heirs do not receive a step-up to current fair market value when you die. They inherit the original cost basis, which may create capital gains on a future sale. For highly appreciated homes, this can be a significant trade-off.
- Loss of the $500K home sale exclusion — once the home is in the trust, you cannot use the §121 exclusion ($500K married) on a future sale since the trust, not you, owns the property.
- Post-term rent is required to be genuine and fair — failure to pay fair market rent after the term can cause the IRS to include the home in your estate anyway.
Model the actuarial discount and compare to alternatives
We calculate the expected taxable gift value for your age, the property value, and various term lengths using current IRS actuarial tables and the §7520 rate. We compare the QPRT to alternative strategies — SLAT, IDGT, outright gift — to determine which produces the best outcome given your estate goals and mortality risk tolerance.
ShurekEstate attorney drafts the QPRT
The QPRT must comply precisely with IRS regulations — §2702 and the QPRT regulations define exactly what the trust may and may not contain. Any deviation from the required form causes the trust to fail and the full value of the home to be treated as a taxable gift. The estate attorney must be experienced with QPRT drafting specifically.
Estate attorney drafts — Shurek reviews tax complianceTransfer title and obtain qualified appraisal
A qualified independent appraisal of the property at the date of transfer is required to establish the fair market value used in the taxable gift calculation. We coordinate the appraisal engagement and review the appraisal for IRS compliance before it is attached to the gift tax return.
Independent appraiser — Shurek coordinatesFile Form 709 with actuarial calculation attached
The gift tax return documents the transfer, the IRS actuarial tables used, the calculated taxable gift value, and the exemption consumed. Adequate disclosure starts the 3-year statute of limitations on IRS challenge of the gift's value.
ShurekAt term end — establish fair market rent arrangement
If you wish to remain in the home after the term, a written lease at fair market rent is required. The lease must be genuine — paid on schedule, documented, and at a rate supported by comparable market rents. We advise on the rent arrangement and its estate planning implications.
Shurek advises — attorney drafts lease| Form | Name | When Due | What It Does and Why It Matters |
|---|---|---|---|
| 1040 | Individual Income Tax Return | April 15 annually | During the QPRT term, the trust is a grantor trust — all income (rent from any portion of the property, investment income if any) flows to your personal 1040 via grantor trust statement. After the term, if you pay rent to the heirs, that rent is income to them and reported on their returns. Your 1040 is relatively unaffected by the QPRT during the term unless the property generates taxable income. |
| 709 | Gift Tax Return | April 15 of the year following the transfer | The most important filing in the QPRT — documents the transfer, the fair market value of the home at funding, the actuarial calculation reducing that value to the taxable gift amount, and the lifetime exemption allocated. The qualified appraisal is attached. Adequate disclosure starts the statute of limitations. We prepare this return with full actuarial documentation. |
Actuarial modeling for various term lengths and comparison to alternative strategies. Appraisal coordination. Form 709 preparation with actuarial calculation and appraisal attachment. Post-term rent documentation and tax reporting for heirs. Monitoring the home's status during the term and alerting to any issues that could jeopardize the trust's validity.
The QPRT has a simple compliance calendar during the term but the setup and the term expiration both require careful coordination.
Appraisal, Trust Execution, Title Transfer
Qualified appraisal obtained. QPRT document executed. Title transferred to trust. All three must happen in the same period to establish the taxable gift date.
Form 709 Filed with Actuarial Calculation
Gift tax return documents the transfer with full actuarial calculation showing the discounted taxable gift value. Adequate disclosure starts the IRS statute of limitations.
No Required Annual Filings (if no income)
QPRT is a grantor trust with no separate filing requirement unless the property generates taxable income. Continue occupying the home and maintaining the property as during any other ownership period.
Title Passes — Lease Executed if Remaining
Home formally passes to beneficiaries. If remaining in the home, fair market rent lease is executed immediately. Rent payments begin per the lease schedule.
Rent Payments and Documentation
Monthly or quarterly rent paid to heirs per the lease. Documented and paid on schedule. Heirs report rental income on their personal returns.