Personal Residence Trusts

PERSONAL RESIDENCE TRUSTS

Personal Residence Trusts (also Qualified Personal Residence Trusts, or "QPRTs," and personal residence grantor retained income trusts, or personal residence "GRITs") are irrevocable trusts to which a settlor transfers his or her home or vacation home, retaining a term of years for occupancy and then permitting the property to pass to remainder beneficiaries. There is a present gift (of a "future interest" that does not qualify for the $11,000 gift tax annual exclusion) to the remainder beneficiaries. The value of this gift is equal to the value of the home less the value of the interest retained by the settlor (determined under government tables). So long as the settlor survives the entire term of years which he or she has retained, the technique will save a significant amount of tax; however, if the settlor dies before the end of this term of years, the property will be included in the settlor's gross taxable estate for federal estate tax purposes.