Passing on Your Home with Qualified Personal Residence Trusts (QPRTs)

Rising real‑estate values and changing tax laws have forced many families to rethink how they pass homes and vacation properties to the next generation. A house is often more than an investment; it’s the backdrop for holidays, birthdays and countless family memories. But a large home can also push an estate over the federal and state tax thresholds. While the federal estate tax exemption is $13.99 million per person in 2025, it will increase to $15 million per person beginning January 1 2026. Even with higher exemptions, state estate and inheritance taxes can apply to smaller estates.

A Qualified Personal Residence Trust (QPRT) offers a way to transfer a house or vacation property to children or other beneficiaries at a discounted value for gift‑ and estate‑tax purposes. QPRTs have been around for decades, but renewed interest has grown as property values have surged and the current high estate tax exemption is set to climb in 2026. This article explains how a QPRT works, when it makes sense, and how it compares to other strategies for keeping family homes in the family.

What Is a QPRT?

A QPRT is an irrevocable trust designed to remove a personal residence or vacation home from your taxable estate while allowing you to keep using the property for a set number of years. You (the grantor) transfer the home into the trust and retain the right to live in it rent‑free for the retained term, which can range from two years to twenty years or more. After the term ends, the property passes to your designated beneficiaries—often your children—at a reduced taxable value. Because the home is no longer part of your estate (provided you outlive the term), any future appreciation occurs outside of your taxable estate, potentially saving substantial estate taxes.

A QPRT works because the Internal Revenue Service (IRS) values the gift at the time of transfer as the present value of the remainder interest, not the full fair‑market value. This valuation is calculated using IRS tables and a Section 7520 rate (based on interest rates). When interest rates are high, as they have been in late 2024 and 2025, the present value of the remainder interest is lower, further discounting the gift. The lower the gift value, the less of your lifetime gift‑tax exemption you use when funding the QPRT. Should you survive the retained term, the property is removed from your estate altogether. If you die during the term, the full value of the house is included in your estate, so choosing the term carefully is crucial.

Why Use a QPRT?

1. Reduce Estate and Gift Taxes

By transferring your home’s future appreciation out of your estate, a QPRT can dramatically reduce estate taxes. For example, a vacation home valued at $3 million today could easily be worth much more in a decade. If you transfer it now via a QPRT with a ten‑year term and survive the term, any appreciation belongs to your heirs rather than increasing your estate’s taxable value. Given that the federal estate tax rate is 40 percent, shifting even a few million dollars of appreciation can save your heirs hundreds of thousands of dollars.

2. Preserve Family Memories

Families often want to keep a beloved property out of probate and ensure it remains available for future generations. Parents can place vacation property into a trust to avoid probate, set rules for use and expenses, and maintain control even after death. The same principle applies to QPRTs—although the grantor eventually relinquishes ownership, transferring the house via trust simplifies transfer, sets ground rules and protects against challenges.

3. Discounted Gift Value

Since the IRS values the remainder interest rather than the full fair market value, the gift for tax purposes is often significantly less than the home’s market value. High interest rates in 2025 and 2026 mean a lower remainder value and a larger discount. You can pass a multimillion‑dollar property to your children using less of your lifetime exemption than you would by gifting cash or other assets.

4. Control During the Retained Term

During the retained term, you continue to live in the home and pay property taxes, insurance and maintenance. You maintain control over improvements and can even sell the house if needed (although the trust must be restructured and a new home purchased). This is particularly attractive to homeowners who want to enjoy the property during their lifetime but ensure that its long‑term value benefits their heirs.

How a QPRT Works

1. Create the trust. An estate‑planning attorney drafts an irrevocable trust agreement naming you as grantor and your children or other chosen heirs as remainder beneficiaries. The document specifies the retained term during which you can occupy the residence.

2. Transfer the property. You execute a deed transferring ownership of the home to the QPRT. If the property is mortgaged, you’ll typically need to pay off the loan or refinance it outside the trust because mortgages complicate the calculation of the gift and may jeopardize the trust’s benefits.

3. Continue living in the home. You retain the right to live in the home for the entire retained term. You must pay all expenses—including taxes, insurance and maintenance—since you’re still considered the home’s resident.

4. Gift and tax reporting. When the trust is funded, your attorney or accountant calculates the gift’s value using IRS tables. You file a gift tax return (Form 709), applying part of your lifetime exemption.

5. End of term. If you survive the retained term, the property passes to your beneficiaries. At that point, you can continue living there by paying a fair‑market rent to the new owners (often the trust or your children). Paying rent has the added benefit of transferring additional wealth to your heirs without using additional exemption.

6. Estate inclusion if you die early. If you die before the term ends, the full fair‑market value of the house at your death date is pulled back into your estate. While this negates the transfer’s estate‑tax benefit, you’re no worse off than if you had never created the QPRT.

Choosing the Right Term

Selecting the retained term is a balancing act. A shorter term increases your chances of surviving the term, ensuring the house passes to your heirs. However, a shorter term also reduces the discount because the IRS considers you giving up the home sooner. Conversely, a longer term increases the discount but heightens the risk that you will die during the term and lose the estate‑tax benefit. Most people choose terms between 5 and 15 years, considering their health, age and family history.

Remember that once the term ends, you no longer own the home. If you wish to continue living there, you must pay rent. Failing to pay rent could be considered an additional gift, potentially using more of your exemption. Paying rent can also be a planning tool; rent paid to your heirs after the trust term is not subject to gift tax or counted toward your annual exclusion limits.

QPRTs vs. Other Trust Strategies

Cabin Trusts and Vacation Home Trusts

Families may use cabin trusts (sometimes called family limited liability companies or specialized trusts) to set guidelines for use, payments and maintenance for shared vacation properties. Cabin trusts can operate indefinitely, allowing multiple generations to co‑own a vacation home and fund maintenance. Unlike QPRTs, these trusts don’t provide as significant an estate‑tax discount. Instead, they focus on structure and governance, ensuring fairness among siblings and covering expenses.

Revocable and Irrevocable Trusts

A revocable living trust is primarily used to avoid probate and allow easier management of assets. It does not remove assets from your estate. An irrevocable trust can provide asset protection and estate‑tax benefits but often lacks the use‑and‑occupy structure of a QPRT. For example, a Medicaid Asset Protection Trust (MAPT) shields assets from long‑term care costs, but transferring a home into a MAPT is subject to Medicaid’s five‑year look‑back rule; if created less than five years before applying for Medicaid, it can cause a period of ineligibility.

Qualified Personal Residence Trust vs. Qualified Terminable Interest Property (QTIP) Trust

A QTIP trust is commonly used to provide income to a surviving spouse while preserving assets for children from a prior marriage. It allows the deceased spouse to control asset distribution after the surviving spouse’s death but keeps assets in the taxable estate. A QPRT focuses solely on transferring a residence. If you have a blended family, you might use a QPRT for your home and a QTIP trust for investments to balance the needs of your spouse and children.

Grantor Retained Annuity Trusts (GRATs) and SLATs

Other estate‑tax planning tools include Grantor Retained Annuity Trusts (GRATs) and Spousal Lifetime Access Trusts (SLATs). A GRAT lets you transfer appreciation on a volatile asset such as a business or stock portfolio by retaining an annuity for a term; if the asset grows faster than the IRS Section 7520 rate, the excess passes tax‑free. A SLAT allows one spouse to fund an irrevocable trust benefiting the other spouse while removing assets from the estate. Each tool serves a different purpose and may complement a QPRT.

Benefits and Drawbacks

Advantages

• Estate‑tax savings. Removing a high‑value home from your estate reduces or eliminates estate taxes. This benefit is especially important in states with low estate‑tax exemptions.

• Retention of use. You can live in the property during the retained term and maintain a personal connection to it. After the term, paying rent allows you to continue using the home and further reduces your taxable estate.

• Potential gift‑tax leverage. The discount means you use less of your lifetime exemption, leaving room to transfer other assets tax‑free.

• Protection from creditors. Once the property passes to your beneficiaries, it can be protected from your personal creditors and potential lawsuits.

Disadvantages

• Risk of dying during the term. If you die before the term ends, the estate‑tax benefit disappears. Choosing a term that reflects your life expectancy is essential.

• Loss of control after the term. Once the term ends, you no longer own the home. To continue living there, you must pay rent to your children or the new owners.

• No step‑up in basis. Unlike property that passes at death, which receives a step‑up in basis (resetting the tax basis to fair‑market value), the property in a QPRT retains your original basis. If your children later sell the house, they may owe capital gains tax on the appreciation during your lifetime. Balancing estate‑tax savings with potential capital‑gains liability is crucial.

• Complex rules. QPRTs have strict requirements. Only a principal residence and one vacation home can be transferred, and they must be free of substantial debt. If the trust sells the property during the term, the sale proceeds must be reinvested in another residence or distributed back to you, potentially complicating planning.

• Administrative cost and maintenance. Creating and managing a QPRT requires legal and accounting assistance. You’ll also need to keep up with property taxes, insurance and maintenance. Families planning to keep a vacation property must address taxes, insurance and upkeep and be mindful of complex rules when properties are located in other countries.

QPRT Case Study

Imagine Anna and Ben, both in their early sixties, own a beachfront vacation home worth $4 million. They expect their estate to exceed the federal exemption, even with the new $15 million per person exemption taking effect in 2026. Their home has appreciated rapidly, and they want to ensure their children can enjoy it without a hefty tax bill.

Working with their estate‑planning attorney, Anna and Ben create a QPRT with a 12‑year term. The IRS Section 7520 rate is relatively high in 2025, so the taxable value of their remainder interest is calculated at $2 million—half of the home’s fair‑market value. They file a gift tax return, reducing their combined lifetime exemption by $2 million. Anna and Ben continue to use the home and pay its expenses. If they both survive to 2037, the home passes to their children outside their estates. Anna and Ben then sign a lease to rent the home from their children, paying fair‑market rent, which further reduces their taxable estate. If one of them dies before 2037, half the house’s value comes back into that person’s estate, but the surviving spouse’s interest stays in the trust.

Alternatives and Complementary Strategies

Cabin Trusts for Shared Vacation Properties

If your goal is to keep a vacation property in the family and manage it jointly among siblings or cousins, a cabin trust or limited liability company might be more appropriate. These structures set guidelines for usage, maintenance and expense sharing. They do not provide the same estate‑tax discount as QPRTs, but they can prevent conflict by establishing clear rules.

Life Insurance for Estate Taxes and Liquidity

Even with a QPRT, your estate may owe taxes or need liquidity to equalize inheritances among children. Purchasing life insurance through an Irrevocable Life Insurance Trust (ILIT) can provide tax‑free proceeds to cover those costs. Because the policy is owned by the ILIT, proceeds do not add to your estate.

Charitable Remainder Trusts (CRTs)

For philanthropic homeowners, a Charitable Remainder Trust allows you to transfer highly appreciated assets, receive a lifetime income stream, and benefit charity after your death. CRTs can be combined with QPRTs; for example, you might use a QPRT for your home and a CRT for your stock portfolio.

Medicaid Planning Considerations

A QPRT is not a Medicaid‑planning tool. Assets transferred into a QPRT remain countable for Medicaid eligibility because you retain an income interest during the term. If your primary concern is protecting your home from nursing‑home costs, a Medicaid Asset Protection Trust may be more appropriate. However, those trusts are subject to Medicaid’s five‑year look‑back period—transferring a home within five years of applying can trigger a penalty.

Practical Tips for Implementing a QPRT

• Work with professionals. An experienced estate‑planning attorney and tax advisor can help you choose the right term, structure the trust properly and coordinate with your overall plan.

• Coordinate with beneficiaries. A QPRT should be part of a broader conversation about goals and responsibilities. Parents should talk to their children about who really wants the property, who can afford the expenses, and how they will make decisions together. The same is true for QPRTs; your heirs must be prepared to own and maintain the property.

• Address insurance and maintenance. Keep the home insured and well maintained. Consider creating a sinking fund or using a life insurance policy to cover property taxes and repairs.

• Plan for rent payments. When the retained term ends, start paying fair‑market rent promptly. Document the lease and payments for tax purposes. The rent provides your children with extra income and reduces your taxable estate further.

• Monitor tax law changes. While the estate tax exemption is scheduled to increase to $15 million per person in 2026, Congress can amend the law. QPRTs take time to complete, so build flexibility into your plan and consult your advisors regularly.

Conclusion

Qualified Personal Residence Trusts offer a powerful way to pass a home or vacation property to the next generation at a discounted value, protecting it from estate taxes and future appreciation. They allow homeowners to continue living in the property during a chosen term, after which the home transfers to their beneficiaries. However, QPRTs are not one‑size‑fits‑all. They come with risks—primarily the chance of dying during the term—and require careful coordination, ongoing maintenance and open family communication.

As you consider whether a QPRT makes sense, evaluate your health, estate size, tax exposure and family dynamics. Compare the potential tax savings against alternatives like cabin trusts, GRATs, SLATs and basic estate planning documents. If you decide to move forward, work with experienced professionals and keep your heirs involved. With thoughtful planning, a QPRT can help you keep your cherished home in the family and minimize taxes—ensuring your legacy lives on in both memories and financial security.