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)
“People buy their necessities in shops and have to pay dearly for them because they have to assist in paying for what is also on sale there but only rarely finds purchasers: the luxury and amusement goods. So it is that luxury continually imposes a tax on the simple people who have to do without it.”
—Friedrich Nietzsche (1844–1900)
“Grammar is a tricky, inconsistent thing. Being the backbone of speech and writing, it should, we think, be eminently logical, make perfect sense, like the human skeleton. But, of course, the skeleton is arbitrary, too. Why twelve pairs of ribs rather than eleven or thirteen? Why thirty-two teeth? It has something to do with evolution and functionalism—but only sometimes, not always. So there are aspects of grammar that make good, logical sense, and others that do not.”
—John Simon (b. 1925)
“If you would feel the full force of a tempest, take up your residence on the top of Mount Washington, or at the Highland Light, in Truro.”
—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)