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Qualified personal residence trusts and estate planning

While federal estate and gift tax exemptions are fairly generous, Ohio residents may still wish to approach them cautiously when developing their estate plans. Residential real estate values fell sharply following the 2008 financial crisis, but property prices have since rebounded. Most homes in Ohio and around the country are worth far less than the current estate tax exemption, but this situation may not persist in fast-growing markets or during speculative bubbles. Congress may also choose to lower these exemptions.

Testators who wish to enjoy their homes while protecting their heirs from possible future estate taxes sometimes choose to place their residences into qualified personal residence trusts. Setting up a QPRT reduces the size of an estate for tax purposes while allowing property owners to continue to live in their homes. Once the QPRT has been set up, the property concerned and any future appreciation will no longer be subject to federal estate taxes.

However, there are drawbacks to incorporating QPRTs in estate plans. These trusts can make selling a property difficult, and ownership is lost at the end of a QPRT term. When QPRTs end, properties are generally transferred to heirs or placed into grantor trusts. Age and health of should also be taken into consideration when making these decisions as the benefits of QPRTs are lost if the grantor passes away before the fixed period has ended.

Attorneys with experience in this area may explain the benefits of estate planning tools like QPRTs to their clients, but they could also point out that they are not appropriate in all situations. Attorneys could also recommend that estate plans be revisited and revised on a regular basis.

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