A Qualified Residence Trust (QRT) is a specific type of irrevocable trust that allows individuals to transfer their primary residence or a vacation home into the trust while retaining the right to live in the residence for a specified number of years. This estate planning tool is particularly useful in reducing the taxable value of an estate for gift and estate tax purposes.
When an individual establishes a QRT, they can transfer their home into the trust and name beneficiaries who will inherit the property after the individual’s death or after the term of the trust ends. The key feature of a QRT is that the grantor retains the right to use the residence, effectively allowing them to continue living in their home while the value of the property is removed from their taxable estate.
For example, if a person transfers a home valued at $1 million into a QRT and retains the right to live in it for ten years, the value of the home may not be included in their estate for tax purposes when they pass away, assuming the trust is structured correctly and the grantor survives the retained interest period. However, the gift of the residence to the beneficiaries is considered a completed gift, which may have gift tax implications.
In Houston and surrounding areas in Texas, a QRT can be particularly advantageous for high-net-worth individuals looking to minimize their estate tax liability while maintaining the ability to live in their homes. It’s important to consult with a qualified estate planning attorney to ensure that the trust is set up in compliance with Texas laws and IRS regulations.
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