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A QPRT is an irrevocable trust into which you place your primary residence or second residence but retain the right to live in that residence for a specified period of time. It is very similar to the GRAT (see our separate explanation of a GRAT) except that you retain the right to live in the house as opposed to receiving payments.
We use the IRS’s arbitrary rules to establish a discounted gift tax value for the remainder interest that will pass to your children. That gift usually computes out to be approximately 25% – 35% of the value of the residence at the time the trust is set up. Unlike a GRAT, it is difficult to zero out the gift. At the end of the stipulated time period, the residence, including all the appreciation, can pass to your children estate tax free.
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