Budgeting Financial Planning Estate Planning What Is a Qualified Personal Residence Trust (QPRT)? Definition and Examples of a QPRT By Julie Garber Julie Garber Julie Garber is an estate planning and taxes expert with over 25 years of experience as a lawyer and trust officer. She is a vice president at BMO Harris Wealth management and a CFP. Julie has been quoted in The New York Times, the New York Post, Consumer Reports, Insurance News Net Magazine, and many other publications. learn about our editorial policies Updated on May 4, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by Vikki Velasquez Fact checked by Vikki Velasquez Vikki Velasquez is a freelance copyeditor and researcher with a degree in Gender Studies. Previously, she conducted in-depth research on social and economic issues such as housing, education, wealth inequality, and the historical legacy of Richmond VA as well as their intersectionality while working for a community leadership nonprofit. Vikki leverages her nonprofit experience to enhance the quality and accuracy of Dotdash's content. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article What Is a QRPT? How a QPRT Works How to Get a QPRT Definition A qualified personal residence trust (QPRT) is a special type of irrevocable trust that is designed to hold your primary or secondary residence and remove its value from your taxable estate. Photo: seb_ra / Getty Images Definition and Example of a Qualified Personal Residence Trust A QPRT is a trust that allows you to transfer your primary or secondary home to a future beneficiary with gift tax savings. Once you put the residence in the QPRT, you can stay in the house until the specified date, at which time you will transfer ownership to the beneficiary. Any value the home accrues between the time you open the trust and transfer ownership will not be counted for tax purposes. You will pay estate taxes only on the value as of the day you established the trust. Acronym: QPRT Note A QPRT is an irrevocable trust, which means it generally cannot be changed or revoked once it is established. In this regard, it differs from a revocable trust. How a QPRT Works Suppose you want your son to inherit your house, but you're not ready to move out just yet. In order to reduce the impact that holding on to the house will have on your taxable estate, you can set up a qualified personal residence trust for 10 years. Suppose the house is worth $400,000 at the time you set up the trust. Ten years from now, it may be worth $550,000. That $150,000 increase in value will happen tax-free, because the house is worth $400,000 in your trust. After 10 years, the house will pass to your son, and you will only be responsible for gift tax on the original $400,000 value. Note There are many variations on how this might work in practice. If the original owner dies before the trust expires, for example, the tax benefits are voided. The original owner, their spouse, or their dependents must live in the home (or at least have it available for them to live in) during the entire period of the trust. How to Get a QPRT There are several steps involved in establishing a qualified personal residence trust. Write the Irrevocable Trust Agreement The first step in establishing a QPRT is writing the irrevocable trust agreement. You'll need to decide who will serve as the initial and successor trustees, how long you want to retain the right to live in the residence (this is called the "retained income period") before it passes to your ultimate beneficiaries, and then who will be the ultimate beneficiaries of the trust when the retained income period ends. Fund the Trust With Your Residence You'll then need to transfer ownership of your residence into the name of the QPRT. This is done by recording a new deed from your name into the name of the trust in the land records where the property is located. Obtain an Appraisal of Your Residence for Gift Tax Purposes As part of the transfer, you'll also need to obtain an appraisal of the residence as of the date you transfer it into the name of the QPRT from a licensed real estate appraiser. This is necessary to establish the fair market value of the property for gift tax purposes. Report Your Gift to the IRS The next step is to file a Form 709, United States Gift (and Generation-Skipping Transfer Tax) Return, with the IRS, which will be due on Tax Day (usually April 15) of the year after you transfer the residence into the QPRT. The transfer of the residence into the QPRT is deemed to be a gift to the ultimate beneficiaries of the trust for federal gift tax purposes. If you live in a state that also has a state gift tax, then you'll also need to file a state gift tax return. Note You cannot generally add anything else to the qualified personal residence trust. After You Set Up Your QRPT During the retained income period of the QPRT, you'll go about your business as usual. You'll be able to continue to live in the residence rent-free and take all appropriate income tax deductions. You'll also be required to maintain and repair the property for the benefit of the ultimate beneficiaries of the QPRT. Transfer Ownership to Your Ultimate Beneficiaries When the retained income period ends, the trustee of the QPRT must transfer ownership of the residence from the name of the trust into the names of your ultimate trust beneficiaries. This is done by recording a new deed from the name of the trust into the names of the trust beneficiaries in the land records where the property is located. Once the retained income period ends, you'll need to pay fair market rent if you want to continue to live in the residence full-time or if you want to use it periodically, such as for vacations. Payment of rent will help to further reduce the value of your taxable estate and pass more of your assets on to your ultimate beneficiaries without using any more of your gift tax exclusion, since the rent payments won't be considered gifts to your beneficiaries. Key Takeaways A QPRT is a trust designed to hold your primary or secondary residence and remove its value from your taxable estate.You can transfer your residence into the trust today but retain ownership for the period you designate.When the trust expires, ownership transfers to your beneficiary, but your gift tax impact is based on the original value as of the time you established the trust. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Cornell Law School, Legal Information Institute. "26 U.S. Code § 2702 - Special Valuation Rules in Case of Transfers of Interests in Trusts." Cornell Law School, Legal Information Institute. "26 CFR § 25.2702-5 - Personal Residence Trusts." Internal Revenue Service. "26 CFR 601.201: Rulings and Determination Letters (Also Part I, § 2702; 25.2702-5.)," Page 2. Internal Revenue Service. "26 CFR 601.201: Rulings and Determination Letters (Also Part I, § 2702; 25.2702-5.)." Internal Revenue Service. "26 CFR 601.201: Rulings and Determination Letters (Also Part I, § 2702; 25.2702-5.)," Pages 3-6. Internal Revenue Service. "Frequently Asked Questions on Gift Taxes." Internal Revenue Service. "Instructions for Form 709 (2021)." Internal Revenue Service. "26 CFR 601.201: Rulings and Determination Letters (Also Part I, § 2702; 25.2702-5.)," Page 9. Journal of Accountancy. "The ABCs of QPRTs."