QPRTs: Passing Your Home to Heirs While Living in it for Years
A Qualified Personal Residence Trust (QPRT) allows you to transfer your home to heirs at a reduced gift tax value, while retaining the right to live there for a set number of years.
This approach works well when:
- You own a high-value primary or vacation home.
- You expect significant appreciation.
- You want to use part of your exemption efficiently.
How It Works
- Transfer home into QPRT.
- Retain right to live there rent-free for term (e.g., 10–15 years).
- IRS values the gift as full home value minus retained interest (based on §7520 rate).
- After term ends, home passes to heirs (or trust for them).
- If you wish to stay, you pay fair market rent, further reducing your estate.
Example
$5M vacation home, 10-year term, §7520 rate 4%, age 60:
- Retained interest valued at ~$2M.
- Taxable gift = ~$3M.
- If home grows to $8M in 10 years, all $3M in appreciation is outside your estate.
Risks
- If you die before term ends, property comes back into estate.
- Irrevocable so you can’t take the home back.
- Heirs take your basis (potential capital gains later).