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Is a qualified personal residence trust right for you?

When you're developing your estate plan, you need to determine what will happen not just to your primary residence but to your vacation home(s). Whether it's a centuries-old house by the ocean that's been in your family for generations or a mountain cabin where you spend Christmas vacations every year, these properties can have not just significant monetary value, but great sentimental value.

A qualified personal residence trust can hold all of your properties for a specified period of time. You can then transfer them to your children or other heirs at a reduced gift tax rate.

These specialized trusts aren't necessarily beneficial for everyone. The estate tax exemption is currently almost $11 million. However, if your assets are well above that or if you expect the property value to increase substantially, a QPRT is worth considering.

That value is assessed and set when the trust is set up, so if it appreciates over the years, the estate tax won't increase accordingly. The longer a property is held in the trust, the greater the gift tax discount is. When the trust's term is up, the beneficiaries own the property.

Terms are generally established based on the grantor's life expectancy. If the grantor dies before the end of the term, the property goes back into the estate and the QPRT is negated.

These trusts can be structured in multiple ways. You can establish a separate QPRT for each property or include them all in one. You can also establish multiple QPRTs for one property, with a portion designated for each child.

There are a number of alternatives to QPRTs, and these trusts aren't right for everyone. It's important that your children or heirs want the property and have the same sentimental attachment to it that you do. As one tax manager notes, "You have to make sure the whole family is on the same page." Further, because the heirs are responsible for upkeep expenses once the term ends, a QPRT is best for families where those heirs can afford to take care of it.

An experienced California estate planning attorney can review QPRTs and other options for keeping your vacation home in the family while minimizing the tax burden on your heirs. You can then decide which is best for you and your family.

Source: Barrons, "Holding Vacation Homes In a Trust Can Help Heirs," Matt Miller, Nov. 05, 2016

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