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QUALIFIED PERSONAL RESIDENT TRUST,
GRUT'S & GRAT'S

A qualified personal residence trust or (QPRT) is a gift of a personal residence to the children or other beneficiaries or heirs using a trust in which the trustor retains the use of the residence for a certain period of time, generally between 10 and 20 years. At the end of this time, the trust terminates and the residence passes outright to the beneficiaries of the trust. At that point, if the trustor wishes to continue to live in the residence the trustor must pay fair market value rent to the trustee or the beneficiaries of the trust depending on how the trust is structured. The value of this gift at the time it is originally made to the children or other heirs and transferred into the trust is discounted by the value of the use of the residence retained by the donor (the life estate valuation) computed by reference to Government tables. However, if the donor or trustor dies before the end of the retained use, the trust will be included in his or her estate for estate tax purposes, obviously including the value of the home.

This can be a very valuable tool for the transfer of a residence for the benefit of children and a wonderful estate-planning tool.

Grantor Retained Annuity Trust

These trusts involve the gift of assets other than a personal residence and are similar to a qualified personal residence trust. In each case the trustor retains a life estate interest or income interest in the trust (expressed as a percentage or dollar amount) for a certain period of time after which the trust terminates and the assets pass to the trust beneficiaries. The gift to the trust beneficiaries is discounted by the value of the income interest retained by the trustor, again computed by reference to the Government life expectancy tables.

GRUT

The GRUT is most often associated with the transfer of a family business operated as an S corporation. The donor parent can enjoy substantial gift tax discount by retaining an income interest in the trust for a period of years after which the shares in the trust passes to the family member remainder beneficiary. Like the qualified personal residence trust the trustor must survive the retained income, to keep the assets out of his or her estate for estate tax purposes.

 


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