A Qualified Personal Residence Trust (QPRT) is an irrevocable trust funded with a client’s personal residence in which the client retains the right to possess and use the residence for a specified number of years. At the term’s end, if the client is still living, the property will pass tax-free to the client’s designated beneficiaries.
By transferring their residence into the trust, the client gives their beneficiaries what is known as a contingent remainder interest in the property. Essentially, they will own it after a certain period of time if certain conditions are met. The beneficiaries receive the client’s home only if the client survives until after the trust terminates.
A QPRT can also hold limited amounts of cash for expenses or improvements to the residence, and can sell the residence to someone other than the client. If the residence is sold, the trust property must be reinvested in a replacement residence, returned to the client or the QPRT must pay the client a qualified annuity for the remainder of the trust term. In the instance of the selection of the third option, the QPRT converts to a GRAT.