Use a residence trust to lower your estate taxes

Q: I've read that I can reduce the taxes on my estate through a qualified personal residence trust. What is that, and how does it work?

A: A qualified personal residence trust (QPRT) is worth considering as part of an estate plan. In its simplest form, you as the grantor transfer irrevocably the ownership of a personal residence to a trust for a set number of years, or a term, after which the ownership passes to your designated beneficiaries, usually your children.

Here's how it works: During the term of the trust, you may live in the house rent-free, but you are responsible for taxes, insurance, and upkeep. At the end of the term, you as the grantor may continue to live in the residence by paying fair market rent to the trust beneficiaries. The primary advantages of using a QPRT are that it:

When deciding whether to use a QPRT, you'll want to balance the potential estate and gift tax savings with the consequences of relinquishing ownership to your kids. The decision is best made with the help of a wealth manager in conjunction with a qualified estate or tax attorney.

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Burnette is an owner/partner of Clark & Burnette Wealth Management LLC in Lake Charles, Louisiana. The information in his answer is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Send your money management questions to medec@advanstar.com Also engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.