As you get into your retirement years, estate planning becomes a more important part of maximizing your assets. At some point, you may consider passing down your family home or a vacation home to your children. You may even wonder is you should establish a qualified personal residence trust (QPRT) to do that.
Understanding a qualified personal residence trust
With a qualified personal resident trust, you transfer ownership of your property to your heirs. As part of the QPRT, you receive qualified term interest on your home’s worth for a certain amount of time. You can use that interest to continue living in your home. When you no longer can receive term interest on your home, you would pay your children rent to continue living in it.
The pros and cons of a QPRT
Establishing a QPRT has advantages and disadvantages. Some of the pros of a qualified personal resident trust include the following:
- If you pass away during the time you still are living in your home, your home isn’t considered part of your taxable estate and it passes directly to your children or heirs.
- A QPRT allows for continued use of your home and allows you to take homeowner tax deductions until you transfer ownership to your family members.
- A QPRT allows a treasured family home or vacation property to stay in your family for the long-term.
- If you end up needing to pay rent with a QPRT, your children will receive that money, giving them a greater inheritance.
Some of the disadvantages of a qualified personal resident trust include:
· It could be more difficult to sell your home if you eventually need to.
· You could lose property tax benefits at a certain point.
· Your children may have to pay a capital gains tax on the home if they sell it after receiving ownership of it.
Getting help when including property in your estate plan
If you think a qualified personal resident trust might be the right option for you and your heirs, you should consult an experienced estate planning attorney. An attorney can help you weigh your options on how to pass down a piece of real estate property in your estate plan and establish a QPRT.
If you want to keep a special home or vacation place in your family for years to come, a QPRT might work well for you. Then, you will have peace of mind about enjoying your home for as long as you want to.