The ABCs of QPRTs

Many taxpayers assume their estates will escape federal and state estate taxes because they underestimate the worth of their most valuable asset -- their principal residence or vacation home. In today's real estate market, a popular estate planning technique is to reduce the size of an estate b...

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Bibliographic Details
Published inJournal of Accountancy Vol. 202; no. 4; p. 53
Main Author King, James P
Format Trade Publication Article
LanguageEnglish
Published New York American Institute of Certified Public Accountants 01.10.2006
Subjects
Age
Beneficiaries
Client relationships
CPAs
Estate planning
Estate taxes
Exclusion
Fair market value
Fractional interests
Gift taxes
Grantor retained annuity trusts
Interest rates
Marital deductions
Qualified personal residence trusts
Remainder interests
Tax planning
Tax rates
Vacation homes
Vacations
United States > US
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Summary:Many taxpayers assume their estates will escape federal and state estate taxes because they underestimate the worth of their most valuable asset -- their principal residence or vacation home. In today's real estate market, a popular estate planning technique is to reduce the size of an estate by transferring a residence to a qualified personal residence trust (QPRT). Before recommending QPRTs to their clients, CPAs first must understand the mechanics of creating and funding such a trust and the potential savings, benefits and disadvantages. The federal interest rate under section 7520 is one of the main factors that drive the favorable tax outcome of valuing the gift of the residence. The higher the federal interest rate, the lower the gift value and the lower the potential gift tax. Taxpayers considering the use of a QPRT should consult with qualified legal professionals about establishing, drafting and funding the trust.
ISSN:0021-8448
1945-0729