Are you looking for a way to keep your home “in the family” without paying a lot to the government? One way you can transfer your home to your children with little or no gift or estate taxes, yet continue to live there, is with a special arrangement called a Qualified Personal Residence Trust (QPRT).

Your Home In Trust

With a QPRT, you transfer your home to a trustee, who can even be yourself if your state law allows. The trustee allows you to use the home rent free for a fixed term of years that you specify.

During the fixed term, you continue to pay the mortgage, real estate taxes, home insurance, and maintenance and repair expenses. You can deduct the mortgage interest and real estate taxes on your individual income-tax return. At the end of the fixed term, the trustee transfers your home to your children, or keeps it in trust for them.

At that point, you can move out of the home. Or, instead of transferring the home to your children immediately, it can be kept in trust for your spouse’s lifetime, which keeps the home available to you. Alternatively, you can rent the home from your children for its fair market rental value.

Tax Consequences

Although the transfer of your home to a trust during your lifetime would be subject to gift taxes, you would be allowed to subtract from the home’s gift-tax value the value of your right to live in the home rent free for the fixed term. That would lower the amount of the taxable gift. And, if this amount, when combined with previous taxable gifts, is less than your $1 million lifetime exemption from the gift tax, no gift tax would be due.

If you survive the fixed term, the home’s value would not be included in your estate for federal estate-tax purposes. (If you die in 2010, there would be no estate tax anyway.) And, even if you die before the fixed term ends, your estate would pay no more taxes than it would have without the QPRT.

Interested?

A QPRT may be an excellent way to pass your home to your children with favorable tax consequences. Remember, before making any financial decisions, it is best to consult with a qualified advisor or advisors specializing in the field in question.

Protecting your personal and financial security is important to us. There are many financial tools that can be used to help you meet your needs. Our Security Mutual Life Representatives, working in conjunction with your other professional advisors, can be instrumental in helping you plan for the best financial future for your family. Please contact us if you have any questions or are in need of planning assistance. (Legal Notice)

Visit Our Planning Library

R 01/07