Houston Estate Planning and Elder Law Attorney Blog
Even with its funny name, a QPRT can save you hundreds of thousands of dollars in estate taxes after your death for your Houston family. Let's take a closer look at what the Clintons did and whether the same strategy could help you.
While QPRTs are complicated trusts, the basics of what they do and why are easy to understand.
If you are considering this trust as part of your plan, take a note from Bill and Hillary Clinton. The Clintons used a qualified personal residence trust as part of their own estate tax planning.
Basically, a QPRT is created with a predetermined time limit and ownership of the residence is transferred to that trust. The value of the residence is fixed for gift tax purposes on the date ownership is transferred. When the time limit of the trust runs out, the trust is terminated and ownership of the residence passes to a beneficiary designated in the trust. In this case, that is presumably Chelsea Clinton. For tax purposes, this transfer is then seen as a gift and when the Clintons pass away, the residence will not be part of the estate for estate tax purposes.
However, there are some potential drawbacks to the use of a QPRT. These drawbacks were addressed in a recent Motley Fool article titled “QPRT: This Tax Strategy Could Save Bill and Hilary Clinton (and You) Big Money.”
For example, when the QPRT time limit expires, the Clintons will no longer own the residence. If they continue living in it after that, then they will have to pay fair market rent to the new owner. Additionally, if the Clintons pass away before the trust runs out, the trust will be destroyed and treated as if it never existed for estate tax purposes.
Not everyone needs a QPRT and not everyone has enough assets to worry about estate taxes. However, for those who do have enough assets, a QPRT is one vehicle that can be used to lower the estate tax burden on their heirs.
Reference: Motley Fool (June 21, 2014) “QPRT: This Tax Strategy Could Save Bill and Hilary Clinton (and You) Big Money”