A Good Time to Give a House to Your Kids

Real estate values have been on the decline, though not as much as stocks.  On the bright side, now might be a good time to give your personal residence or vacation home to younger family members and avoid or reduce federal gift and estate taxes.  “But where am I going to live?” is a logical question.

A special strategy, known as a qualified personal residence trust (QPRT), lets you give away the house but keep the right to live there for a fixed number of years selected by you.  At the end of that time, ownership will pass to someone else (a child, for example).  You must file a gift tax return when you transfer your home to the QPRT (rhymes with “Rupert”) but any gift tax will be reduced by (1) current low real estate values, (2) a discount for the number of years the trust lasts, and (3) a gift tax credit that shelters up to $1 million.  Any increase in the home’s value while it is in the QPRT will avoid further gift tax.

A few words of caution: This plan is appropriate only for people who expect to owe federal estate tax (estates currently over $3.5 million, $7 million for married couples).  If you die before the trust ends, most or all of the tax savings are lost.  And if you survive, as hoped, until the trust ends, you’ll have to pay rent to the new owners or move to a different abode.

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