Michigan parents looking for ways to pass on their residences to family members sometimes find that they can benefit from a qualified personal residence trust (QPRT). A QPRT is a trust that allows you to remove value from your home before transferring it to an heir. According to CNN, a QPRT can especially benefit people whose properties may appreciate in value as time goes on.
Generally, people use a QPRT to gift a primary house or a vacation home to children. However, using a QPRT does not mean you have to give up control of your property right away. You would instead institute a time period in the QPRT when you maintain control of the house. Once the period expires, you would transfer control of the house to your heirs. By this time, the home value has decreased, which in turn drops the tax liability of your estate.
The time period of a QPRT can vary. Some people institute a long period, not only so they can maintain control of the house for a prolonged period, but to further lower the value of the property. Even when the time period expires, it does not mean that you would have to move out of the house. You can set up an arrangement with your children or heirs to stay in the home while paying them fair market rent.
However, to fully benefit from a QPRT, you cannot pass away before the term of the QPRT completes. Otherwise, your estate will incur the full market value of your home at the time you passed away, which means your estate tax liability will increase. For this reason, people in poorer health might consider a shorter QPRT period so they do not risk passing away before the end of the QPRT period.