QPRT
A QPRT is an irrevocable trust holding the grantor's primary or secondary residence for a specified term of years (typically 10–20 years). The grantor retains rent-free use of the residence for the term; at term-end, ownership passes to the named beneficiaries. The gift-tax cost equals the residence's full value minus the present value of the grantor's retained interest, often producing 30–50% gift-tax savings versus an outright gift.
QPRTs work by separating the present-day right to live in the residence from the eventual right to own it. The IRS's §7520 rate-based valuation tables compute the present value of the grantor's retained term — longer terms produce larger retained-interest values and smaller remainder values. The remainder passing to beneficiaries is the gift; the retained portion stays with the grantor and is valued (at the §7520 rate) as a temporary right.
A $2M residence put into a 15-year QPRT when the grantor is age 65 and §7520 rate is 5% might value the remainder at $1.2M and the retained interest at $800k — meaning the gift-tax cost is $1.2M of lifetime exemption used, and any future appreciation on the home (during AND after the 15-year term) is permanently outside the grantor's estate. If the home appreciates to $4M by the end of the term, the $2M of additional appreciation transfers gift-free.
The risks are the same as GRATs in spirit: if the grantor dies during the term, the entire residence value is pulled back into the estate (§2036). Longer terms produce larger gift-tax savings but higher mortality risk. After the term ends, the grantor must either move out OR rent the residence from the beneficiaries at fair-market rent — a structurally permanent change that some grantors are unwilling to accept. The post-term-rental approach is common (and the rent-paying is itself a gift-tax-free transfer to beneficiaries) but emotionally hard.
QPRTs work for both primary and secondary (vacation) residences. A single grantor can have one QPRT for the primary and one for the secondary. Properties must be 'personal residences' under §280A — investment rentals don't qualify. Improvements made during the term are gifts at the time of improvement (using exemption), not waiting until term-end.
Synthetic estates with high-value residences should include QPRT-structured properties at various term stages: recently funded, mid-term, end-of-term-approaching, post-term with rent payments. Properties inside QPRTs need to track: term-start date, term-length, §7520 at funding, retained-interest value, current FMV. Edge cases: early-death scenarios where the residence is pulled back into the estate.
Common pitfalls
- Treating QPRT term as renewable — once the term ends, the QPRT terminates; can't be extended.
- Forgetting that improvements during the term are separate gifts — adding a $200k pool requires using $200k of exemption that year.
- Letting the grantor continue rent-free occupancy after term-end — without a fair-market rent agreement, §2036 pulls the property back into the grantor's estate.
- Choosing too long a term for the grantor's age and health — the mortality table on §2036 inclusion is unforgiving.
Examples
Grantor age 65, §7520 rate 5%, 15-year QPRT term, $2M residence. IRS tables compute the retained-interest value at ~$800k (40% of $2M); remainder value $1.2M. Gift-tax cost: $1.2M of lifetime exemption used. If the home appreciates to $4M by year 15 and grantor survives the term, $2M of post-funding appreciation transfers gift-tax-free, with the remainder portion of $1.2M at the original gift cost. Net: ~$2.8M of value outside the estate vs. $2M of exemption usage.