Monday, June 23, 2014
While the estate tax is one of the most controversial aspects of the tax system, many wealthy individuals use sophisticated tax-planning strategies to reduce or escape estate taxes altogether. One of these strategies is called the qualified personal residence trust (QPRT), and the disclosure that former President Bill Clinton and Hillary Clinton used the strategy to cut their estate tax has brought the QPRT into the news.
The Clintons achieved several things by utilizing QPRTs. First, by moving their home in a QPRT, they made a taxable gift that fixed the value of the home at the then-current value back in 2011. Second, the value of that gift to the QPRT was further discounted to reflect the value of money between 2011 and the expiration date of the QPRT.
The greatest advantage of a QPRT is that as the value of the home increases over time, that increase in value is not subject to estate tax, it has already been transferred out of the estate because of its placement in the trust. With enough time, the increase in value can amount to thousands of dollars, and the 40% savings in estate tax can be monumental.
See Dan Caplinger, QPRT: This Tax Strategy Could Save Bill and Hillary Clinton (and You) Big Money, The Motley Fool, June 21, 2014.