Your primary home in one state and vacation home in another must go through separate or ancillary probate in their respective states before transferring to your beneficiaries after you die. A QPRT or qualified personal residence trust may help your heirs avoid the inconvenience of probate in multiple states.
These are answers to common questions about QPRTs.
What is a QPRT?
A QPRT is an irrevocable trust that owns and holds your property to reduce your estate’s tax obligation. New York estates over $30,000 in value must go through probate; however other states have different thresholds.
A QPRT protects your home as a gift and freezes its value. Therefore, your gift tax obligation will not increase if the home’s market value increases. However, the federal interest rate determines the gift value and tax savings.
Can I still live in the home?
Specifying a retained income period allows you to live in the home rent-free and receive gift tax benefits. Still, you must pay insurance, maintenance, and real estate taxes. Also, if you die before this period ends, the property becomes subject to probate.
If you stay beyond this period, you must pay fair market rent to the trust’s beneficiaries. Paying rent reduces your estate’s value for probate purposes but may increase your beneficiaries’ income taxes.
Can I sell a home in a QPRT?
You may sell the home during your rent-free period, but you must replace it in the QPRT with another how of the same value.
Can I create multiple QPRTs?
You may have up to two QPRTs at once. If you have more than two homes, you must consider different estate planning options.
Carefully formulating your estate plan can help your heirs avoid ancillary probate when you own property in multiple states.