For many Tennessee families, the home is not just a place of comfort it’s also one of the most valuable assets in the estate. When it comes to planning for the future, finding ways to protect that home while minimizing estate and gift taxes can be a priority. One advanced tool for accomplishing this is the Qualified Personal Residence Trust (QPRT).
What Is a Qualified Personal Residence Trust?
A QPRT is a type of irrevocable trust designed to transfer a primary residence or vacation home out of your estate at a reduced gift tax value. Essentially, the homeowner places the residence into the trust but retains the right to live in it for a set number of years (called the “retained term”). After that period, ownership of the home transfers to the beneficiaries usually children or heirs at a significantly reduced taxable value.
You can learn more about the federal framework for these trusts by visiting the IRS guidelines on estate and gift taxes.
How a QPRT Works
- Establishing the Trust: The homeowner creates the QPRT and transfers the deed to the trust.
- Retained Term: During the trust term (for example, 10–15 years), the homeowner can continue living in the property rent-free.
- Transfer to Beneficiaries: Once the term ends, the property passes to the beneficiaries. If the homeowner wishes to continue living there, they must pay fair market rent, which further reduces the taxable estate.
Because the gift value is discounted based on the retained term and IRS actuarial tables, families often save substantially on gift and estate taxes.
Benefits of a QPRT
- Estate Tax Reduction: Transfers the residence at a lower taxable value.
- Keeps the Home in the Family: Ensures heirs inherit a cherished property.
- Leverages Lifetime Gift Tax Exemption: Reduces the amount of exemption used compared to an outright transfer.
- Potential Income Tax Benefits: The grantor can still deduct mortgage interest and property taxes during the retained term.
Risks and Considerations
QPRTs are not for everyone, and careful planning is required. Risks include:
- Death During the Term: If the homeowner dies before the retained term ends, the home is pulled back into the estate, negating tax benefits.
- Loss of Flexibility: Because the trust is irrevocable, changes cannot be made once established.
- Beneficiary Ownership: After the trust term, heirs legally own the property, and the grantor must pay rent to stay in the home.
For Tennessee-specific considerations, see the Tennessee Department of Revenue’s estate and inheritance resources.
Why Legal Guidance Matters
QPRTs involve sophisticated planning, IRS compliance, and precise drafting. They work best for individuals with higher net worth’s, especially those who want to pass down valuable real estate while reducing estate tax exposure. A poorly structured QPRT can result in tax pitfalls, disputes, or even invalidation.
How Champagne Law Firm Can Help
At Champagne Law Firm, with offices in Sevierville, Nashville, and Rogersville, we work with high-net-worth individuals and families to design estate plans that protect their most important assets. Attorney Kelly Champagne-Deutekom’s dual experience as both a former financial advisor and now an estate planning attorney provides the insight necessary to evaluate whether a QPRT is right for your goals.
Taking the Next Step
If your estate includes a valuable primary residence or vacation home in Tennessee and you want to protect it for the next generation while minimizing taxes, a Qualified Personal Residence Trust may be the right solution.
Call Champagne Law Firm at 865-228-8080 or contact us online to schedule a consultation about QPRTs and advanced estate planning strategies.
