Estate and Gift Tax Aspects of Residence Trusts
If a grantor dies during the retained term of a residence trust, the full value of the trust property is included in the grantor’s estate under Code Section 2036(a)(1) (because the grantor retains the right to possess or enjoy the property). If the grantor retains a reversionary interest during the retained term of the trust, the value of the residence is included in the grantor’s estate under Code Section 2033.
However, it is usually prudent to include in a QPRT a contingent reversionary interest during the retained term of the trust. If the grantor dies during the retained term, the residence is included in the grantor’s estate whether or not there is a reversionary interest. But, if there is a reversionary interest, the age of the grantor now comes into the valuation of the retained interest. Because now there is a possibility that the grantor will die within the retained term and the remainder beneficiaries will then receive nothing, the value of the retained term increases and the value of the remainder interest decreases (only the transfer of the remainder interest is subject to the gift tax, so it is beneficial to decrease its value).
Following the expiration of the retained term, the residence is no longer included in the grantor’s estate; provided that the grantor is not a beneficiary of the trust and does not have the right to rent the residence for less than fair market value.
Read more about this topic: Qualified Personal Residence Trust
Famous quotes containing the words estate, tax, aspects, residence and/or trusts:
“The difference between de jure and de facto segregation is the difference open, forthright bigotry and the shamefaced kind that works through unwritten agreements between real estate dealers, school officials, and local politicians.”
—Shirley Chisholm (b. 1924)
“I have no doubt that it was a principle they fought for, as much as our ancestors, and not to avoid a three-penny tax on their tea; and the results of this battle will be as important and memorable to those whom it concerns as those of the battle of Bunker Hill, at least.”
—Henry David Thoreau (1817–1862)
“I suppose an entire cabinet of shells would be an expression of the whole human mind; a Flora of the whole globe would be so likewise, or a history of beasts; or a painting of all the aspects of the clouds. Everything is significant.”
—Ralph Waldo Emerson (1803–1882)
“My residence was more favorable, not only to thought, but to serious reading, than a university; and though I was beyond the range of the ordinary circulating library, I had more than ever come within the influence of those books which circulate round the world, whose sentences were first written on bark, and are now merely copied from time to time on to linen paper.”
—Henry David Thoreau (1817–1862)
“He that trusts to you,
Where he should find you lions, finds you hares;
Where foxes, geese.”
—William Shakespeare (1564–1616)