The Advantages of a QPRT and Why You Should Have One in Your Estate Plan
The QPRT, which stands for Qualified Personal Residence Trust, is a great tool if you want to protect your home and reduce or eliminate estate taxes (also called death taxes). It's especially beneficial for those who have a large estate, in the $3 Million or more range, and want to leave their home to their loved ones. If you're thinking about creating a QPRT, be sure to work with an experienced estate planning attorney who knows how these trusts work.
What is a QPRT?
A QPRT is a specific trust designed to hold either your primary residence or vacation home. The trust requires detailed language and some internal steps, but the advantages are well worth the effort. For most of us, our home is our biggest asset, or at the very least, one of our biggest assets. You have worked hard to purchase it and you want to protect it. With the QPRT, we can do more than just protect it. We can remove the entire value of your home from your taxable estate, which can save hundreds of thousands of dollars in estate taxes.
What are the benefits of a QPRT?
By placing your home in a QPRT, you get three big advantages:
- The QPRT, when done correctly, removes the value of your home you're your taxable estate, once it is placed into the trust. This can reduce or eliminate the amount of estate taxes that your beneficiaries will have to pay when you die.
- The QPRT can protect your home from creditors if you suffer financial difficulties, such as a liability from a car accident or a lawsuit.
- You can control how the home, including a family vacation home, can be passed on to the next generation and remain in the family.
Who should consider a QPRT?
While any homeowner can place their home into a QPRT, the majority of benefits tend toward families with over $2 Million in assets. While the QPRT can protect a house from creditors and help keep a vacation home in the family, the estate tax benefits are where the QPRT pays for itself. The family's total assets matter because there is a balancing act between estate tax benefits and protection from long-term care. For clients with $2 Million or less in assets, we can position their money in such a way that they can qualify for long-term care benefits, This includes protecting their home with a trust we call a Medicaid Trust so that their home is protected from Medicaid (here in Massachusetts, Medicaid long-term care benefits are administered by MassHealth).
Although many people think they have too much money to qualify for MassHealth, there are tools we can use to get you qualified which we talk about in our Too Much Money Article. Once you pass a certain asset limit, call it $2 to $3 Million, it becomes more difficult, and qualifying for benefits is less likely. In those cases, the family members may never qualify for benefits, they just have too much money. And that money triggers the estate tax, which has to be paid by your estate before your beneficiaries get their share. In that case, protecting the home with a Medicaid Trust doesn't make sense, because you won't qualify for Medicaid anyway. If we know that you aren't going to qualify for Medicaid benefits, we instead focus on lowering or eliminating the estate tax. The QPRT does exactly that.
How does a QPRT work?
The short answer is that QPRT takes your home out of your estate and puts it into the trust. You can still live in your home; just because you've put your home into a QPRT doesn't mean you have to move out. And, if you're the trustee, you can even rent it out to family members or others, which is especially useful for vacation homes.
Placing the home into the trust will reduce or eliminate estate taxes on your home. That's because the value of your home is removed from your taxable estate and they can't count the trust property against you – it keeps the government's hands out of your pocket. When the trust term expires, the home passes to your beneficiaries free of any estate taxes. At that point, we can use other spend-down techniques to help protect your other assets, and we can even revisit Medicaid long-term care planning because you are spending down your assets!
When you create a QPRT, you get to choose who will serve as trustee (the person who "signs" for the trust) and who will be the beneficiaries of the trust. You can even name yourself as trustee, and, if you have children, you can name them as beneficiaries.
The QPRT term can be for any length of time. You can choose how long the QPRT will last - it can be for a period of years or even decades. The term can be as short or as long as you want it to be.
You can make gifts to the QPRT, to help spend down your assets, and the money can be used to maintain the property or pay property-related expenses.
How do you Create a QPRT?
A QPRT is an expert-level complex document. It's important to get professional help from an experienced estate planning attorney, who can help you determine if a QPRT is right for you and can create trust.
The attorney drafts the trust and then creates a deed to place your home into the trust. Once in the trust, the property stays there for the duration of the trust term, and after the term ends, the property passes to your beneficiaries. The appreciation in the value of the home passes estate and gift tax-free to the beneficiaries!
Concluding Remarks
A QPRT is a great way to protect your home and reduce or eliminate estate taxes. With proper planning and the proper attorney, a QPRT can be a valuable tool in your estate plan. It's especially beneficial for those who have large estates and want to leave their home to their loved ones or keep a vacation home in the family for generations. Creditor protection helps in the event of an unforeseen lawsuit, such as if you were at fault in an auto accident. It can also greatly reduce the estate taxes that your beneficiaries would otherwise have to pay.
Make sure you plan ahead so that you are able to protect your home. Stop putting off your estate plan and schedule a Strategic Planning Session with us.
Call 978-494-5036 or BookMyPlanningSession.com to schedule a session today!
