Orange County Qualified Personal Residence Trust Attorney

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For many people, a family home can serve as the asset contributing the most significant value to an estate.

Naturally, you want your loved ones to benefit from the equity you have spent years building in your home, and Orange County, CA, residents in need of qualified estate planning services are sure to appreciate the guidance and support OC Wills & Trust Attorneys can offer.

The only problem with passing valuable property to heirs is that they may be subject to taxation that makes it impossible to retain the property. They might have to sell just to cover the taxes. Luckily, there are several potential legal strategies designed to reduce tax burden when passing your estate to loved ones.

For your home, specifically, you might want to consider a qualified personal residence trust (QPRT). This is a unique type of trust designed to allow you to retain interest in your residence during your lifetime while reducing potential taxes when the home is ceded to an heir.

How does a QPRT work? What are the potential benefits or downsides of choosing this legal structure?

If you are ready to get your estate planning underway, the experienced team at OC Wills & Trust Attorneys is available to inform and advise Orange County residents on the best strategies for their needs. Contact us to schedule a complimentary consultation today.

How QPRTs Work

A QPRT is a type of irrevocable trust designed to pass property to a beneficiary with certain benefits, including reduced tax burden and protection against claims. As the grantor in the trust, you will set the term, or the duration of the trust, and there is no limit. It could be 10 years, or 12, or 20. 

The term is important because it must expire, and the property must pass to your beneficiary during your lifetime. If you do not outlive the term of the trust, your property will revert to your estate, and benefits will be lost.

Benefits of Choosing a QPRT

From the moment you place your home in a QPRT, the taxable value is set based on the appraisal value of the property at the time. If your home gains value in the interim, the added value is not subject to gift tax. This also reduces your taxable estate when you pass.

You retain interest in your home until the trust expires, which means you can continue to live there and even sell the home. Another benefit of irrevocable trusts is that the assets they hold are not your personal property, so a home held in a QPRT is not subject to any claims against your estate.

Potential Risks to Consider

There are several things to think about before you choose a QPRT. First, an irrevocable trust cannot be canceled or amended, so whatever terms you create are essentially set in stone until the trust expires.

If you pass away before the term expires, the home reverts to your estate, and tax benefits are lost, so choosing the term is a bit of a gamble. 

If all goes as planned, and the term expires during your lifetime, the home is no longer in your name or in trust for your use, so if you want to continue living in the home, you must pay rent at fair market value or the home will revert to your taxable estate. Additionally, the new owner of your home could force you to leave.

Another potential issue arises if you want to sell your home while in trust. You must invest in new property within a specified period (say, two years). Failure to do so will terminate the trust, and your home will revert to your estate.

Who Should Choose a QPRT

Is a QPRT right for you? This legal structure is generally intended to transfer property from older owners to younger beneficiaries. It is not ideal for beneficiaries like older spouses, siblings, or parents, but it can be advantageous when used by older homeowners looking to transfer property to a child or grandchild.

The reason is that you want to be sure the beneficiary will outlive the person bequeathing the property. Because a QPRT is an irrevocable trust, it cannot be amended, even if the named beneficiary passes away before the term expires. 

Upon expiration, you could create a new QPRT with a new beneficiary, but the taxable value will be based on the current market value, which could be significantly higher.

Estate Planning Tailored to Your Needs

Determining how to infer the greatest benefits when passing along your estate to loved ones can be challenging. A trusted attorney will advise you of your options so you can make informed decisions and create a plan tailored to your needs and preferences.

Are you an Orange County, CA, resident interested in protecting your estate to pass it on to loved ones? Contact OC Wills & Trust Attorneys to schedule a complimentary consultation and speak with a qualified estate planning lawyer.