ransferring the Mansion at a Discount
Tax Tips / Estate Planning
QPRT: Transferring the Mansion at a Discount
๐ก Executive Summary
- Problem: Your primary residence or vacation home is worth $10M and appreciating. If you hold it until death, it eats up a massive chunk of your Estate Tax Exemption (or triggers tax).
- Solution: Transfer the home into a Qualified Personal Residence Trust (QPRT). You retain the right to live there for a set term (e.g., 10-15 years).
- Result: The value of the gift is reduced by the value of your retained use (often a 50%+ discount). Future appreciation is completely removed from your estate.
โ ๏ธ THE MORTALITY GAMBLE
If you die during the trust term (e.g., in year 9 of a 10-year QPRT), the strategy fails, and the full value of the house is pulled back into your estate. Also, after the term ends, if you want to keep living there, you MUST pay fair market rent to your children (the trust beneficiaries).
If you die during the trust term (e.g., in year 9 of a 10-year QPRT), the strategy fails, and the full value of the house is pulled back into your estate. Also, after the term ends, if you want to keep living there, you MUST pay fair market rent to your children (the trust beneficiaries).
The QPRT is essentially a “GRAT for Real Estate” (see Article 616). It leverages the time value of money. By carving out your right to live in the property for a decade, you depress the “gift value” of the home on paper. It allows you to transfer a trophy asset for pennies on the dollar.
๐ง Core Mechanic: Paying Rent to Children
Paying rent to your kids after the QPRT ends sounds annoying, but it is actually a Tax Superpower. It allows you to move even more cash out of your estate (as rent payments) completely tax-free, further reducing your future estate tax bill without using any exemption.
Paying rent to your kids after the QPRT ends sounds annoying, but it is actually a Tax Superpower. It allows you to move even more cash out of your estate (as rent payments) completely tax-free, further reducing your future estate tax bill without using any exemption.
Performance Simulation: $5M Vacation Home (15 Year Term)
Taxable Gift Value
Direct Gift (Today)
$5.0M (Uses full exemption)
Full Impact
QPRT Gift (Discounted)
~$2.0M (Saves $3M Exemption)*
60% Discount
*Assumes interest rates (7520 Rate) are favorable. High rates increase the discount.
Direct Inheritance vs. QPRT
| Feature | Direct Inheritance (Wait to Die) | QPRT (Transfer Now) |
|---|---|---|
| Asset Valuation | Value at Date of Death (High) | Discounted Value Today (Low) |
| Appreciation | Included in Estate Tax | 100% Tax-Free (Out of Estate) |
| Asset Protection | Low (Personal Asset) | High (Held in Trust) |
“A QPRT is the only way to eat your cake (live in the house) and give it away too. It turns your family retreat into a tax-efficient wealth transfer vehicle.”
๐ Related BMT Playbooks (Internal)
๐ก๏ธ The Cousin: GRAT (Same concept, but for stocks/liquid assets) โ๏ธ The Destination: The QPRT remainder should go to a Dynasty Trust โ The Variable: Section 7520 Rates determine the QPRT discount๐๏ธ Institutional Resources (External)
๐ Legal Text: Treas. Reg. ยง 25.2702-5 (Personal Residence Trusts) ๐ Professional Guide: ACTEC on QPRTs ๐๏ธ Definition: Investopedia on QPRT Mechanics
BMT designs for tax reality, not theory.