Are Qualified Personal Residence Trusts (QPRT) still a good idea?

This week, valuewalk.com published “How QPRTs Went From Effective Estate Planning To Time Bomb”, an article on the the use of Qualified Personal Residence Trusts (“QPRTs“) to save on estate taxes.  The article comes after the new 2015 federal estate tax exemption increase.  A QPRT is aFlorida estate planning technique that can help reduce the size of your estate taxes byreducing the number of assets have to go through the probate process.

The technique was far more popular when the estate tax exemption amounts were far lower and the estate tax rates were higher.  About 30 years ago, estate tax exemptions were approximately $600,000 per person, and they restricted the right of passing on any unused portion of your exemption to your spouse.  Today, with the estate tax exemption amount over $5 million per person, and the availability of carrying over unused exemption from the first spouse’s estate to the second spouse, the QPRT technique does not benefit many. Nevertheless, a QPRT can deliver decent estate tax savings to those whose estates are estimated to be above the federal estate tax exemption rates.

How Does a QPRT Work?

• The home or residence is transferred into a Florida trust. The trust will lasts for a term of years, and it gives the “grantor”, the creator of the QPRT, the right to live in the house.
• The grantor retains the ownership and possession of the residence for the term, with the right to live rent free. The grantor will pay any ordinary and recurring expenses such as real estate taxes, insurance, and repairs.
• However, if the grantor dies during the term of the trust, the trust is dissolved, and the residence goes back into the grantor’s estate.
• BUT, if the grantor survives the term of the trust, the residence passes to the beneficiaries at the end of the term, without any additional transfer tax liability.

So how can QPRT help you in your Florida estate planning?  Can a QPRT help you reduce estate taxes? The answer is: it depends, but, it is unlikely. Especially in Florida.  Palm Beach probate litigation attorneys and Florida estate planning professionals know that the motive behind creating a QPRT was to avoid estate taxes, but ultimately supplement them for capital gains taxes on any appreciation in the value of the residence being transferred. That might have made sense when there were estate taxes to avoid, but the rationale for QPRTs has mostly vanished.

See http://www.pankauskilawfirm.com/ for videos and information on Wills in Florida, Florida Trust Law, Estate Planning, and Estate Administration in Florida.