Qprt Calculator

Qualified Personal Residence Trust (QPRT) Calculator

Calculation Summary

Taxable Gift Value (Remainder Interest):
Retained Interest Value:
Projected Value at End of Term:
Potential Estate Tax Savings:

*Savings estimate assumes a 40% federal estate tax rate and successful survival of the term.

function calculateQPRT() { var homeValue = parseFloat(document.getElementById('homeValue').value); var term = parseFloat(document.getElementById('trustTerm').value); var irsRate = parseFloat(document.getElementById('section7520Rate').value) / 100; var appreciation = parseFloat(document.getElementById('appreciationRate').value) / 100; if (isNaN(homeValue) || isNaN(term) || isNaN(irsRate) || isNaN(appreciation)) { alert('Please enter valid numerical values.'); return; } // QPRT Calculation: Present Value of the Remainder Interest // Basic PV formula: FV / (1 + r)^n var remainderInterest = homeValue / Math.pow(1 + irsRate, term); var retainedValue = homeValue – remainderInterest; // Future Value of the home after the term var futureValue = homeValue * Math.pow(1 + appreciation, term); // Tax Savings calculation: (Future Value – Gift Value) * 40% Estate Tax // This represents the value removed from the estate taxable pool var taxSavings = (futureValue – remainderInterest) * 0.40; document.getElementById('resGiftValue').innerText = '$' + remainderInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resRetainedValue').innerText = '$' + retainedValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resFutureValue').innerText = '$' + futureValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resTaxSavings').innerText = '$' + taxSavings.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('qprt-results').style.display = 'block'; }

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Understanding the Qualified Personal Residence Trust (QPRT)

A Qualified Personal Residence Trust (QPRT) is a powerful estate planning tool designed to transfer a primary or secondary home to the next generation at a significantly reduced gift tax cost. By placing a home into an irrevocable trust for a specific term, the homeowner (the grantor) retains the right to live in the home while "freezing" the property's value for estate tax purposes.

How a QPRT Works

When you create a QPRT, you contribute your home to the trust but maintain the right to reside in it for a fixed number of years (the "term"). Because you keep the right to live there, the IRS considers the "gift" to your beneficiaries to be only the remainder interest—the value the home is expected to have at the end of the term, discounted back to today's dollars using the IRS Section 7520 interest rate.

Key Benefits of a QPRT

• Reduced Gift Tax: The value of the gift is significantly lower than the current fair market value because of the retained right to live in the property.
• Estate Tax Removal: If the grantor survives the trust term, the entire value of the home (including all future appreciation) is removed from their taxable estate.
• Asset Protection: Since the home is in an irrevocable trust, it may offer some protection against future creditors.

Practical Example

Imagine you own a home worth $1,000,000 and place it in a 10-year QPRT when the IRS 7520 rate is 4.2%.

1. The Taxable Gift: The IRS calculates that your right to live there for 10 years is worth roughly $337,000. Therefore, you only report a gift of approximately $663,000.
2. Future Growth: If the home appreciates at 3.5% annually, it will be worth $1,410,598 in 10 years.
3. The Savings: By using the QPRT, you passed a $1.41M asset to your heirs while only using $663,000 of your gift tax exemption. At a 40% estate tax rate, this results in nearly $300,000 in tax savings.

Important Considerations

The primary risk of a QPRT is mortality risk. If the grantor dies before the trust term ends, the strategy fails, and the full value of the home is included in the grantor's estate as if the trust never existed. Additionally, once the term ends, the grantor no longer owns the home and must pay fair market rent to the beneficiaries if they wish to continue living there.