Qualified Personal Residence Trust (QPRT): Transfer Your Home to Heirs Tax-Free
A Qualified Personal Residence Trust (QPRT) is a technique that removes your home from your taxable estate at a discounted gift tax value. You transfer your home to the QPRT while retaining the right to live there for a fixed term (5–15 years). During the term, you live in the home normally and pay all expenses. At the end of the term, ownership passes to your heirs (often children). The gift tax value at the time of transfer is only the 'remainder interest' — a fraction of the home's current value because the heirs have to wait for the term to end. If you survive the term, the home's full appreciated value is out of your estate. The 2026 federal estate tax threshold is $15,000,000, so QPRTs are primarily relevant for high-net-worth individuals with estates that may exceed this amount.
How the QPRT Works: A Numerical Example
Example: You own a home worth $2,000,000 today. Your estate may be subject to estate tax. You establish a QPRT with a 10-year term, transferring the home to the trust. Your children are the remainder beneficiaries.
| ContentWhat HappensContentTax Effect** | | --- | --- | --- | | 1. QPRT established | You transfer $2,000,000 home to the QPRT. You retain right to live there for 10 years. | You make a taxable gift — but only of the 'remainder interest,' not the full $2M | | 2. Gift tax valuation | IRS tables calculate the value of the gift based on your age, the term, and the IRS § 7520 rate. For a 70-year-old with a 10-year term at a 5.0% § 7520 rate, the remainder interest might be approximately 40–50% of the home's value = $800,000–$1,000,000 taxable gift | Using $950,000 as the taxable gift amount — this reduces your lifetime federal gift/estate tax exemption by $950,000, not $2,000,000 | | 3. Term period | For 10 years, you live in the home normally. You pay property taxes, insurance, and maintenance. The home appreciates. | No annual gift tax; no income tax changes; home appreciation occurs outside your estate | | 4. End of term (if you survive) | Ownership transfers to your children. The home is now worth $2,800,000 (after appreciation). | The full $2,800,000 is OUT of your estate. You only used $950,000 of your exemption. You saved: $2,800,000 - $950,000 = $1,850,000 in estate tax base, potentially $740,000+ in estate taxes at 40% | | 5. If you want to continue living there | You must pay fair market rent to your children after the QPRT term ends. | Rent payments further reduce your estate (transfer money out) with no gift tax consequences |
The Critical Risk: You Must Survive the Term
If you die before the end of the QPRT term, the home's FULL fair market value at death is pulled BACK into your taxable estate — as if the QPRT never existed. You also used some of your exemption on the gift, which is then wasted (though it may be partially credited back). The planning is therefore most effective for people who are likely to survive the term. A 10-year term is risky for someone with serious health issues. A shorter term (5 years) is safer but produces a larger taxable gift (less discount). The optimal term balances your health, life expectancy, and desired tax savings.
QPRT in the 2026 Environment
The federal estate tax exemption is $15,000,000 per person in 2026 (under PL 119-21 / One Big Beautiful Bill Act). This means most families do NOT need a QPRT for federal estate tax purposes. However, QPRTs remain relevant for:
- Estates above $15,000,000 (or $30,000,000 for married couples) — where federal estate tax planning is still necessary
- State estate tax planning — states like Massachusetts ($2M threshold), Oregon ($1M threshold), Washington ($2.19M threshold), and others with lower thresholds where a $2M–$5M home creates state estate tax exposure
- Families who expect future asset appreciation — the benefit is greatest when the home will appreciate significantly during the QPRT term
- Wealthy families who have already used their full federal exemption through prior gifts or large estates
The Stepped-Up Basis Tradeoff
A significant limitation of QPRTs: when your children inherit the home through a QPRT, they do NOT receive a stepped-up cost basis at your death. If they sell the home, they pay capital gains tax on the appreciation since your original purchase — not since your death. By contrast, if you kept the home and they inherited it at death, they would receive a full step-up in basis (the basis resets to the date-of-death value), eliminating all capital gains on the lifetime appreciation. For families primarily concerned about income tax rather than estate tax, keeping the home and receiving the step-up may be preferable to the QPRT estate tax savings.