Configuration of a QPRT

As with any legal document, it is important that you have a professional draft of the agreement. Together you can decide who the trustees and beneficiaries are and how long the trust will last. Keep in mind that irrevocable trusts are almost impossible to change once they take effect.

The next step would be to transfer your residence to the QPRT. This is done by creating a new deed that transfers the house from the owner’s name to the QPRT’s name, which will be recorded in the property records. If you have your original deed, you can easily make the changes without the cost of a lawyer. Simply copy the deed onto your computer, make any changes to the part about transferring or buying the property, and keep the rest the same. You will not know the page number of the document filed with the county clerk’s office, so leave that part blank. Everything else must stay the same. A warranty deed will suffice. The third step is to obtain a valid real estate appraisal.

The third step is to report the gift to the IRS. This is done by completing a Form 709, United States Generation Skip and Gift Transfer Tax Return. This form must be completed and filed with the IRS by April 15 of the year following the year the property was transferred to the QPRT. Example: Property is transferred on July 15, return is due the following April. Once it’s complete, the best part is that you can reside in the home and live your life as usual.

After the predetermined number of years for the QPRT ends, the property is transferred to the beneficiaries as detailed in the QPRT. This is accomplished by recording a new deed that transfers residence from the name of the trust to the name of the beneficiaries and documenting it in the property’s land records.

The last step is to pay fair market rent for the property if the previous owner wants to continue living there. The income will transfer more assets to beneficiaries free of gift taxes and reduce the size of the taxable estate.