The Home Alone Strategy: Qualified Personal Residence Trusts (QPRT)
The Home Alone Strategy: Qualified Personal Residence Trusts (QPRT)
How to live in your mansion rent-free for 10 years, transfer it to your heirs at a 50% discount, and remove its future appreciation from your taxable estate.
Executive Summary
- The Problem (Appreciation): You own a $10M home. In 20 years, it might be worth $25M. If you hold it until death, that $25M is fully taxed at 40% ($10M tax bill). You need to move it out now.
- The Solution (QPRT): You transfer the home to a QPRT for a set term (e.g., 15 years). You retain the right to live there rent-free. Because you keep the “right to use,” the value of the gift to your children is heavily discounted (e.g., valued at only $3M instead of $10M).
- The Result: You use only $3M of your Lifetime Exemption. After 15 years, the house (now worth $20M+) passes to your children. You saved estate tax on the entire appreciation difference.
The “Rent” Twist
Post-Term Reality: Once the QPRT term ends (e.g., Year 16), the house legally belongs to your children. If you want to keep living there, you MUST pay fair market rent to them.
👉 Why this is good: Paying rent moves even more cash from your estate to your children without Gift Tax. It’s an additional wealth transfer mechanism disguised as an expense.
Mechanic: The Discounted Gift Math
Discount
Gift Value Reduced
Retained Use
Live Rent-Free
Freeze
Growth Removed
Mortality
Must Survive Term
Simulation: $5M Vacation Home (15-Year Term, 5% Growth)
Taxable Value at Death (Year 16)
| Feature | Revocable Trust (Living Trust) | QPRT (Irrevocable) |
|---|---|---|
| Estate Tax | Full Value Included | Removed (at discounted value) |
| Living Rights | Guaranteed Forever | Guaranteed for Term (Then rent) |
| Asset Sale | Easy (No restrictions) | Complex (Must reinvest in new home) |
“QPRT is the ultimate ‘have your cake and eat it too’ strategy. You live in the house just as you always have, but for tax purposes, the house has already left the building.”
Essential Resources
INTERNAL
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