The Home Freeze: Qualified Personal Residence Trusts (QPRT)
The Home Freeze: Qualified Personal Residence Trusts (QPRT)
Real estate appreciates, and so does the estate tax bill. How to transfer your primary or vacation home to your heirs at a 50% discount while retaining the right to live in it for years.
Executive Summary
- The Problem: You own a $5M beach house in the Hamptons. In 20 years, it will be worth $20M. If you hold it until death, the IRS will tax the full $20M value (40% tax = $8M).
- The Solution (QPRT): You transfer the house into a **QPRT** for a set term (e.g., 15 years). During this term, you have the right to live there rent-free. After the term, the ownership transfers to your children.
- The “Retained Interest” Discount: Because you keep the right to use the house for 15 years, the IRS subtracts the value of your usage from the gift.
👉 $5M House – $3M (Value of your usage) = **$2M Gift Value**.
You use only $2M of your lifetime exemption to transfer an asset that will eventually be worth $20M.
The “Rent” Feature (Not a Bug)
After the Term: When the 15 years are up, the house belongs to your children. If you want to keep living there, you MUST pay them **Fair Market Rent**.
👉 Why this is genius: Paying rent moves more cash from your taxable estate to your children’s pockets without using any gift tax exemption. It’s a tax-free wealth transfer disguised as a landlord-tenant relationship.
Mechanic: Freezing the Value
Simulation: The Hamptons Estate ($5M Current Value, 15-Year Term)
| Feature | Direct Gift to Kids | QPRT (Trust) |
|---|---|---|
| Gift Value | 100% of Market Value | Discounted (30-60%) |
| Step-Up in Basis | Lost (Carryover Basis) | Lost (Carryover Basis)* |
| Best Asset | Cash / Stocks | Vacation Home / Forever Home |
*Note: QPRT is ideal for homes the family intends to keep, not sell, since heirs inherit the original low cost basis.
“A QPRT effectively freezes the value of your home today, while allowing you to enjoy it for years. It turns the inevitable appreciation of real estate from a tax liability into a tax-free legacy.”