If your home is one of your most valuable assets, passing it on efficiently can be a key part of your estate plan. But a straightforward transfer can sometimes trigger costly tax consequences, both for you and the people you want to provide for.
That’s where a qualified personal residence trust (QPRT) comes in — a specialized estate planning tool that helps you pass on your home while limiting the tax impact.
A closer look at the QPRT
A qualified personal residence trust is an irrevocable trust designed specifically to transfer your home — either a primary or vacation residence — to your beneficiaries while reducing the taxable value of that gift. Once the home is placed into the trust, you retain the right to live in it for a set number of years. After that period ends, the property passes to your heirs, typically at a much lower gift tax cost.
What makes this strategy effective is how the IRS values the gift. Because you continue living in the home during the trust term, the current market value is discounted based on your retained interest. The longer the term, the greater the discount and the smaller the taxable gift.
How it works in practice
Let’s say you place a $2 million residence into a QPRT with a 10-year term. During those 10 years, you continue living in the home just as before — nothing changes day-to-day. But behind the scenes, you are locking in the home’s value for tax purposes, shielding any appreciation from future estate taxes.
At the end of the term, the house officially belongs to your beneficiaries. You can continue to live in it, but you would need to pay fair market rent — a step that not only complies with tax rules but can also further reduce your taxable estate.
The benefits that matter most
A QPRT is not just about lowering taxes, though that’s a major advantage. It gives you a structured way to pass on a residence that may have emotional significance while still maintaining use of the property in the near term.
You retain control during the trust period and, at the same time, reduce the size of your taxable estate without having to sell your home or give it away outright.
And ultimately, that kind of long-term planning does more than minimize taxes. It also helps you preserve wealth across generations without last-minute moves or high-risk strategies.
When a QPRT makes sense
This strategy works best when you are confident you’ll remain in your home for the duration of the trust term. It is also most effective when your estate is likely to face significant tax exposure and your residence is a high-value asset.
If you’ve been thinking about how to pass on your home without handing your heirs a tax burden, a QPRT is worth exploring. The rules are complex, and the benefits are tightly linked to how the trust is structured, so this is not a DIY move. But in the right situation, it is one of the more powerful tools available for long-term planning.
Plan while the window is open
The opportunity to transfer a valuable home at a discounted tax rate doesn’t stay open forever — not with changing laws, fluctuating property values and IRS scrutiny on the rise. If you’re thinking about the legacy you’ll leave behind, now is the time to ask whether a QPRT belongs in your estate plan.