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Helping People Age with Dignity

Using a qualified personal residence trust

Federal estate tax exemptions have gone up in the past several years, and now most Massachusetts residents do not have to worry about the issue. However, estate tax laws could always change, and some people want to plan for the potential for lower exemptions and higher estate taxes in the future.

One of the estate planning strategies that a person may want to use is a qualified personal residence trust. A QPRT is a simple trust that is funded by the deed to the settlor's personal residence. The trust allows a homeowner to keep living in the home for the duration of the trust and then pass it on to a beneficiary when the trust terminates.

A benefit of setting up a QPRT is that the amount of the gift of the house to the beneficiary for gift and estate tax purposes will be discounted due to the delay in the beneficiary's receipt of the property. However, a QPRT will only be effective if the homeowner is still alive when the trust terminates. If the homeowner dies before the trust terminates, the property will be revert to the decedent's estate at its fair market value.

A QPRT may be beneficial for some estate plans depending on the age of the homeowner and how the homeowner feels about giving their property away during their lifetime. When a residence is transferred to the beneficiary, the settlor can still live in the residence, but rent must be paid to the trust beneficiary. A trust planning attorney can provide advice to a client as to whether this would be an appropriate strategy.

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