Thursday, October 30, 2008
The following excerpts are from Mike Spector, Gifting Your House and Living in It, Too, Wall St. J., Oct. 30, 2008:
Plunging real-estate values have made it an opportune time for older homeowners to give property to their children, while realizing big savings on gift and estate taxes.
They can do this by moving the home out of their estate with a so-called qualified personal residence trust, or QPRT, which allows homeowners to live in a property for many years before passing it on to their heirs. Though the trusts have been around for many years, many estate planners say now could be a good time to set one up since real-estate values have fallen dramatically in many markets. * * *
The goal: Put beaten-down assets into trusts now and reap benefits from their appreciation outside of your estate. With real-estate values low, executing a QPRT now ensures your estate won't contain a more-expensive home down the road, which could trigger a costly tax bill for your estate.
By transferring your home into a QPRT * * * when the value of your home is most likely at a low point, you're effectively locking in a lower gift-tax amount when you move the home into the trust. And if interest rates move higher in the months ahead, that discount could be even greater because of the special method the Internal Revenue Service uses to compute the home's gift-tax value.
The article also discusses how the technique operates to save taxes as well as the risks associated with QPRTs.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.