San Diego Estate Planning Lawyer Blog

San Diego, California has many personal residences as well as rentals and other uses of property. San Diego has been a military and retirement town for many years however this is changing. It is important to understand the disadvantages as well as the advantages of any legal strategy. The Qualified Personal Residence Trust is an example of advanced estate planning.

The most obvious disadvantage of creating a QPRT is that the grantor of the trust has a predetermined limit on his right to occupy the residence, after which time he must give up ownership while he is still alive. The remaindermen (normally the grantor's children) then will have ownership of the residence, and the grantor will have to pay rent to them. Since many people may find this to be an awkward situation, the QPRT requires a personal decision that should be given careful consideration. It is essential to hire an attorney who understands this complicated estate planning procedure and please feel free to e mail our firm with any questions.

A second disadvantage concerns the amount of income tax liability that will result if the grantor's children (or other remaindermen) later sell the residence. As the laws change constantly by the IRS, it is imperative that any estate plan take into consideration income tax implications. If no trust is created and the residence passes at the grantor's death, the heirs or beneficiaries get a "step-up" in basis, meaning that the gain on the sale will be measured against the value of the residence as of the grantor's death. If a QPRT is created, however, there will be no such step-up and the gain will be measured against the price that the grantor originally paid for the property. Please feel free to contact our firm if we can assist.

Posted by Roy M. Doppelt | Permalink | Email This Post

Posted In: ESTATE PLANNING

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In San Diego, many persons use their San Diego home as both a retirement and a tax savings. Per the disclaimer below, this firm does not give tax advice however is it common knowledge that interest on a prinicipal residence can be used as an advantage for tax deductions. The Qualified Personal Residence Trust also can have tax advantages however in a different manner.

Many people's assumption that their estates will escape federal estate tax may be incorrect because they often underestimate the worth of the most valuable asset that they own, their personal residence. Federal estate tax law provides a means for reducing the tax consequences of transferring the family home. The device that is used to accomplish this goal is known as a "qualified personal residence trust" (QPRT). A combination of an experienced estate planning attorney and certified public accountant are a necessity in the preparation and implementation of this advanced estate planning strategy.

An individual creates a QPRT by transferring his residence to a trust (usually for the benefit of family members) but retaining the right to use the residence rent-free for a specified period of time. The tax savings occur only if the grantor of the trust survives the period of his retained interest. Again, this firm does not give tax advice.

Upon the transfer of the residence to the trust, the grantor is regarded as making a gift of the remainder interest in the trust. The value of the gift is the fair market value of the residence less the value of the grantor's retained interest. The gift is taxable, but only to the extent of the remainder interest, and there will be no further tax on the residence at the grantor's death. If a trust other than a QPRT were used, the total value of the residence would be subject to tax, just as it would be if the residence were transferred by will.

Although the grantor must survive the period of his retained interest in order for the tax savings to be achieved, there is no gamble involved. If he fails to survive his retained interest period, the full value of the residence will be taxed, but that is the same result that would be reached if he never transferred the residence to a QPRT. Also, the grantor may continue to occupy the residence once he has survived the retained interest period, but he must pay rent in order to avoid inclusion of the residence in his estate. Please feel free to e mail us if you have any questions on this estate planning strategy or on any other.

Posted by Roy M. Doppelt | Permalink | Email This Post

Posted In: ESTATE PLANNING

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