A Qualified Personal Residence Trust (QPRT) allows you to transfer your home to your children or other beneficiaries at a reduced tax cost. You place your primary residence or vacation home into an irrevocable trust for a set number of years while continuing to live there. When the trust term ends, the property passes to your beneficiaries, potentially saving your estate substantial federal gift and estate taxes.
New Jersey trust lawyer Christine Matus helps families in Ocean County and throughout New Jersey preserve wealth through strategic estate planning tools like QPRTs. At The Matus Law Group, our estate planning attorneys in Ocean County guide clients through every step of establishing and managing these complex trusts, from initial property transfer to end-of-term arrangements.
This guide explains how QPRTs work, what properties qualify, how to calculate potential tax savings, when you should consider this strategy, and what happens if you outlive or don’t survive the trust term. Call (732) 281-0060 for a consultation.
How Does a Qualified Personal Residence Trust Work?
A QPRT works by freezing your home’s value for gift tax purposes at the time of transfer. You transfer your residence into an irrevocable trust and retain the right to live there rent-free for a specific term of years. Because you’re only giving away the future interest in the property, not the immediate right to possess it, the taxable gift value is significantly lower than the home’s full fair market value.
The IRS calculates the gift value using complex formulas that consider the home’s current value, the length of the trust term, your age, and current interest rates (called Section 7520 rates). A longer trust term and younger age at transfer result in a smaller taxable gift because you’re retaining the right to live there for more years.
When the trust term expires, the home passes to your beneficiaries outside your taxable estate. This means your estate avoids taxation on any appreciation that occurred after you transferred the property. For example, if you transfer a $500,000 home into a 15-year QPRT and it appreciates to $800,000 by the term’s end, that $300,000 of growth escapes estate taxation entirely.
Key Takeaway: A QPRT reduces estate taxes by freezing your home’s gift tax value at the transfer date and removing all future appreciation from your taxable estate, but only if you survive the entire trust term.
Trusts Lawyer in New Jersey – The Matus Law Group
Christine Matus, Esq.
Christine Matus, Esq., is a dedicated Trust and Estate Planning attorney based in New Jersey with over 25 years of experience serving families and individuals with compassion and integrity. As the founder of The Matus Law Group, Christine focuses on helping clients create tailored trusts and estate plans that protect their loved ones, including those with special needs. She is a trusted advocate in the legal community, having served as a mediator with the Superior Court of New Jersey and as a leader within organizations like the Ocean County Bar Association, where she currently serves as Secretary of the Board of Trustees.
Christine is known not only for her legal acumen but also for her deep commitment to public service and community engagement. She frequently lectures on estate planning and nonprofit law and contributes to publications aimed at empowering underserved communities. Christine’s broad legal background, including service on ethics and arbitration committees and general counsel roles, uniquely equips her to guide clients through complex trust and estate matters with clarity and care.
What Properties Qualify for a QPRT?
The IRS limits QPRTs to personal residences only. Your primary home qualifies, meaning the house where you live most of the year. You can also use a QPRT for one vacation home or second residence, but not for investment properties or rental real estate. You can only have two QPRTs at any time. One for your primary residence and one for a vacation home.
The property must include a dwelling that you actually use as a residence. Raw land doesn’t qualify unless you’re actively constructing a residence for use as a personal home on it. The IRS regulations specify that the residence can include surrounding land that’s reasonably appropriate for residential use, but not farmland, commercial property, or land held primarily for investment.
Many Ocean County residents use QPRTs for shore properties in communities like Point Pleasant Beach, Seaside Heights, Lavallette, and Long Beach Island that have appreciated significantly over the years. Waterfront homes along Barnegat Bay and beachfront properties have seen particularly strong appreciation, making them ideal candidates for QPRTs that freeze value at current prices while passing future growth to children tax-free.”
Key Takeaway: Only your primary residence and one vacation home qualify for QPRT treatment. Investment properties, rental properties, and raw land without a dwelling under construction cannot be placed in a QPRT.
When Should You Consider a Qualified Personal Residence Trust?
A QPRT makes sense when your estate will exceed the federal estate tax exemption and you own a valuable home you want to keep in the family. Under current federal law, the federal estate and gift tax exemption is $13.99 million per person ($27.98 million for married couples) for 2025 and is scheduled to increase to $15 million per person ($30 million for married couples) in 2026. Estates above those amounts may be subject to federal estate tax at rates up to 40%.
You should be relatively young and healthy when establishing a QPRT. Most estate planners recommend this strategy for homeowners in their 50s or early 60s with life expectancies well beyond the proposed trust term.
This strategy works best when you plan to live in the home long-term and have sufficient assets outside the residence to support yourself. You should also be comfortable with the irrevocable nature of the transfer, as you cannot undo a QPRT once established.
Key Takeaway: QPRTs work best for homeowners in their 50s or early 60s with estates exceeding federal exemption thresholds, valuable homes they want to keep in the family, and sufficient assets outside the residence to support themselves after the irrevocable transfer.
What Are the Tax Benefits of a QPRT?
The tax advantages of a QPRT make it one of the most powerful estate planning tools for transferring valuable residences. Understanding these benefits requires looking at both federal gift and estate tax rules as well as New Jersey inheritance tax law.
Federal Gift Tax Savings
When you transfer property into a QPRT, you make a taxable gift equal to the home’s fair market value minus the value of your retained interest (the right to live there during the trust term). This retained interest is calculated using IRS tables based on your age, the trust term, and current Section 7520 interest rates.
For example, a 60-year-old transferring a $1 million home into a 15-year QPRT might make a taxable gift of only $400,000 to $500,000, depending on interest rates. This allows you to transfer substantial value while using less of your lifetime gift tax exemption.
Estate Tax Savings
The primary benefit occurs when the residence is entirely excluded from your taxable estate, including all appreciation that occurred after the initial transfer. This removes a potentially significant asset from estate tax calculation.
Under N.J.S.A. 54:34-2, close family members, including spouses, children, grandchildren, parents, and grandparents, are generally exempt from inheritance tax as Class A beneficiaries. Other relatives and non-family beneficiaries may still owe NJ inheritance tax at graduated rates depending on their beneficiary class.
Leveraging the Estate Tax Exemption
By reducing the taxable gift value of your residence transfer, a QPRT allows you to preserve more of your lifetime gift and estate tax exemption for other transfers. The exemption you save can be used for outright gifts, gifts to other trusts, or simply retained to shelter other estate assets.
How Do You Set Up a QPRT in New Jersey?
Setting up a QPRT involves three major steps: selecting the trust term, drafting a compliant trust agreement, and legally transferring the property. Each step requires careful planning and must comply with both IRS regulations and New Jersey property law.
Choosing the Trust Term
The trust term is the most critical decision when establishing a QPRT. Longer terms produce greater gift tax savings because you’re retaining the residence for more years, which increases the value of your retained interest and decreases the taxable gift.
However, longer terms also increase the risk that you won’t survive to the end. You also lose the gift tax exemption you used on the initial transfer.
Most grantors choose terms between 10 and 20 years, balancing tax savings against survival probability. Your estate planning attorney can model different term lengths to show projected tax savings at various interest rates and help you select an appropriate duration based on your age and health.
Drafting the Trust Agreement
The trust agreement must comply with strict IRS requirements under Section 2702 of the Internal Revenue Code to qualify for favorable tax treatment. The document must specify that the trust holds only a qualified personal residence, state the precise term length, and prohibit certain transactions, like selling the residence without replacing it.
The agreement should address what happens if you want to sell the home during the trust term. Generally, you must either purchase a replacement residence with the sale proceeds within a limited timeframe or convert the QPRT to a Grantor Retained Annuity Trust (GRAT), a similar trust that pays you annual income instead of providing housing, if you cannot or choose not to replace the residence.
You’ll also need to designate a trustee to manage the trust during its term. Many families choose an adult child or professional trustee. The trustee’s responsibilities include ensuring property taxes and insurance are paid, maintaining the property, and overseeing compliance with the trust terms.
Transferring the Property
Once the trust agreement is signed, you must execute a new deed transferring the property from your individual name to the trustee of the QPRT. This deed must be recorded with the Ocean County Clerk’s office in Toms River to be legally effective.
You should also update your homeowner’s insurance policy to reflect the trust as the property owner. Most insurance companies will continue coverage with this change, though you should confirm this before completing the transfer.
The transfer constitutes a completed gift for federal gift tax purposes, requiring you to file IRS Form 709 (United States Gift Tax Return) for the year of transfer. This return calculates the taxable gift value based on the actuarial tables and reports your use of the lifetime gift tax exemption.
Key Takeaway: Setting up a QPRT requires choosing an appropriate trust term, drafting an IRS-compliant trust agreement, executing and recording a deed in Ocean County, updating insurance, and filing a federal gift tax return.
What Happens at the End of the QPRT Term?
When the trust term expires, legal ownership of the residence automatically passes to the beneficiaries named in the trust agreement, typically your children. At this point, you no longer have any ownership interest in the property. The transfer occurs without probate and without additional gift or estate tax consequences.
If you want to continue living in the home, you must enter into a formal lease agreement with the beneficiaries and pay fair market rent. This arrangement is crucial. If you continue living in the residence without paying fair market rent, the IRS will include the property in your taxable estate, eliminating the estate tax benefits you sought to achieve. The lease must be a bona fide arm’s-length agreement at prevailing market rates in your area.
This rent payment actually provides an additional estate planning benefit because it transfers more wealth to your children outside the gift and estate tax system. You reduce your taxable estate by the amount of rent paid while providing income to your beneficiaries.
Alternatively, you can move out of the residence and allow the beneficiaries to take possession, sell the property, or use it themselves. Some families arrange for the beneficiaries to sell the home back to the grantor, though this requires careful structuring to avoid tax problems.
Key Takeaway: After the trust term ends, you must either move out, pay fair market rent to continue living there, or structure another arrangement that complies with IRS rules to preserve the estate tax benefits.
| QPRT Benefits | Details |
|---|---|
| Tax Advantages | A QPRT reduces estate and gift taxes by valuing the property at transfer time, typically lower than at death, and excludes it from the estate if the grantor outlives the trust term. |
| Asset Protection | Transferring property to a QPRT shields it from the grantor’s creditors, preserving its value for future generations. |
| Estate Planning | A QPRT allows controlled, flexible property transfer to beneficiaries, aligning with family goals for intergenerational wealth transfer. |
What Are the Risks and Drawbacks of a QPRT?
While QPRTs offer substantial tax benefits, they also carry significant risks that could undermine those benefits or create new tax problems. The three main concerns are the mortality risk, loss of control over the property, and capital gains tax consequences for your beneficiaries.
The Mortality Risk
The biggest risk is dying before the trust term ends. If you don’t survive the full trust term, the residence is included in your gross estate at its date-of-death value, as if you had never created the trust. You lose the estate tax benefit entirely and waste the gift tax exemption you used when funding the trust. This creates a worse outcome than if you had simply held the property until death or made an outright gift.
For this reason, you should be in good health when creating a QPRT and choose a term that gives you a high probability of survival. Most estate planners recommend the trust term not exceed your actuarial life expectancy and preferably be several years shorter.
Irrevocability and Loss of Control
Once you transfer the property into the trust, you cannot change your mind, dissolve the trust, or reclaim full ownership. You’re locked into the arrangement for the entire term.
This means you cannot sell the property without either purchasing a replacement residence or converting to a GRAT. You also lose the ability to take out a home equity loan or refinance the mortgage without complicating the trust structure. Any mortgage must be paid off or maintained according to the trust terms.
Capital Gains Tax Considerations
When you transfer a residence into a QPRT and the beneficiaries receive the property at the end of the term, they get your original cost basis (carryover basis). They don’t get the stepped-up basis they would receive if they inherited the property at your death.
This means if the home has appreciated significantly, the beneficiaries will owe substantial capital gains tax if they sell it. For example, if you purchased the home for $200,000 and it’s worth $1 million when the beneficiaries receive it, they’ll owe capital gains tax on approximately $800,000 of gain if they sell.
In contrast, if they inherited the property at your death, they would receive a stepped-up basis equal to the $1 million date-of-death value and could sell immediately with no capital gains tax. This trade-off between estate tax savings and loss of stepped-up basis must be carefully analyzed for your specific situation.
Key Takeaway: QPRTs carry significant risks, including loss of estate tax benefits if you die during the term, complete loss of control over the property, and elimination of the stepped-up basis that beneficiaries would receive through inheritance.
Strategic Trust Planning With an Ocean County Trust Attorney
Transferring your home through a QPRT requires careful planning and precise execution. The tax benefits are substantial, but the risks of improper structuring or failing to survive the trust term are significant. You need an attorney who understands both the technical IRS requirements and New Jersey property law.
New Jersey trust attorney Christine Matus has helped families throughout Ocean County and Toms River preserve wealth through strategic estate planning. At The Matus Law Group, our trust lawyers can calculate your potential tax savings, draft compliant trust agreements, and guide you through the property transfer process.
Call The Matus Law Group today at (732) 281-0060 for a consultation. We’ll review your estate, explain whether a QPRT makes sense for your situation, and help you protect your home for future generations.
