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Trusts & Estates: What are the current regulations regarding the transfer of real estate into a Qualified Personal Residence Trust (QPRT)?
Beers: Under the QPRT regulations, it is possible for the owner of residential real estate to transfer the real estate to a trust but continue to use the property for a certain number of years. At the end of the term, the property passes to the original owner's designated beneficiaries or a trust for their benefit in most cases the children of the original owner.
The key to the popularity of QPRTs lies in the fact that when the original owner transfers the property to the trust, the owner makes a gift to the individuals who will ultimately receive the property, but it is a gift that will take effect at some point in the future. Accordingly, the regulations provide that the value of the gift may be reduced by the value of the right to receive income from the property during the term of the trust. The size of the discount depends on the IRS discount rate, a rate which assumes that the entire return on an investment is received in the form of current income. In fact, the current return on the investment is often less significant than the capital appreciation of the asset. The value of the gift may be reduced further if the trust instrument provides that the property reverts to the estate of the original owner if the owner dies during the term of the trust to reflect the probability that the original owner may die during the term.
Trusts & Estates: What changes has the IRS proposed making in establishing a QPRT?
Beers: The proposed amendment to the QPRT regulations would require that all QPRTs contain language specifically prohibiting the trust from transferring the residence to the donor or the donor's spouse at any time during the term or...