A Personal Residence Trust (PRT) is a type of estate planning tool where in a property owner transfers the ownership of their residence to an irrevocable trust. Under a PRT, the PRT can retain their right to live in the residence for a specified time period.
Personal residence trusts are often used for the purpose of taking the residence out of the grantor’s estate, because they are associated with low gift tax rates. This may be a more favorable option than say, transferring the property to a relative or a charity. The transfer is considered a completed gift to the trust; thus, any appreciation of the residence will be excluded from the estate of the grantor.
What are the Requirements for a Personal Residence Trust?
Requirements for a personal residence trust can vary from state to state. Generally speaking, a personal residence trust needs to follow two basic restrictions:
- The trust can only contain one personal residence, which will must be used as the personal residence for the grantor during the duration set forth in the trust agreement;
- The residence cannot be sold during the trust term
In addition, after the term of residence has expired, a sale of the property back to the grantor (or the grantor’s spouse) is usually prohibited.
What is a Qualified Personal Residence Trust?
A Qualified Personal Residence Trust (QPRT) is similar to a basic personal residence trust with one major exception. With a qualified personal residence trust, the property can usually be sold during the trust term, subject to various limitations depending on state law.
As such, QPRT’s are generally seen as less restricting than standard PRT’s. However, each may be subject to different restrictions regarding residency terms and tax rates; it may be worthwhile to consult with a lawyer for help in determining whether a QPRT would be favorable over a PRT.
Do I Need a Lawyer for Help With a Personal Residence Trust?
Personal residence trusts can be a very useful tool for estate planning. If you have any questions or need help with a personal residence trust, you may wish to speak with a qualified estate lawyer in your area. Your attorney can help you with the drafting and creation of the personal residence trust, so that the terms work in your favor. Also, in the event of a dispute or lawsuit over the trust, your attorney near you can provide you with representation during court hearings.