New York Estate Planning & Elder Law Blog
For many people who pass away, their home is their most valuable asset. As a result, several estate planning strategies are utilized to hide such an asset. One of the most common estate planning tools used to transfer assets is a qualified personal residence trust. Such trusts allow the creator to avoid potentially substantial tax complications without facing significant challenges during their lifetime. After the terms of the trust end, the remainder then passes to designate beneficiaries. Because people interested in qualified personal residence trusts often have several questions about this estate planning strategy, this article considers some nuanced questions about how these trusts operate.
What Happens If You Outlive The Terms of the Trust
It’s easy to end up uncomfortable with the possibility that you might still be alive when the terms of the trust end. In such a situation, the remainder beneficiaries will inherit your assets. This might mean that you need to pay the beneficiaries rental to continue residing at your home. Although this might seem like a substantial challenge at first, realize that this type of action often helps to satisfy the estate planning goal of transferring assets on to loved ones.
What Are the Implications of Such a Trust
To create such a trust, a person must appoint a trustee to manage it. In many cases, a grantor will perform in the role of trustee. These trusts also result in removing a person’s house being removed from that individual’s taxable estate. Currently, both estate and gift tax is set at $11.58 million. This amount, however, is scheduled to reduce to $5 million in 2026. The trust’s remainder is also subject to gift tax, but taxes of this nature are often low.
If you decide to create a qualified personal trust and then pass away before the trust ends, your home will be included in your taxable estate. Other than costs associated with creating and maintaining a qualified personal residence trust, your loved ones will not be in any worse of a situation than when you created the trust.
The Short-Comings to Withdrawing from a Deal
The most substantial drawback to qualified personal residence trusts is that they are irrevocable and that it is impossible to back out of the trust. This fear, however, is diffused when people realize that the most likely negative outcome of the trust is that he or she ends up paying rent to beneficiaries if they outlive a trust term or in some cases, the home passes back to the estate. Another disadvantage to creating such a trust is that there are almost costs associated with establishing one including lawyer’s fees as well as title expenses. Additionally, it is not possible to take out a mortgage on a home after it has been transferred to a qualified personal residence trust.
Despite these shortcomings, it is critical to realize that such a trust can play a part of a comprehensive estate plan. To make sure that the trust plays a valuable role in your estate plan, though, it is a good idea to speak with an experienced estate planning attorney.
Speak with an Experienced Estate Planning Attorney
Qualified personal residence trusts are one of the nuanced estate planning tools that can be utilized to make the most out of a person’s estate. If you have questions or concerns about the estate planning process, one of the best things that you can do is to speak with a knowledgeable estate planning attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.