Qualified Personal Residence Trust (QPRT) — Complete Guide

Executive Summary

A Qualified Personal Residence Trust (QPRT) is an irrevocable trust designed to transfer a personal residence (a primary home or a vacation home) to beneficiaries at a reduced gift tax value. The grantor transfers the residence to the QPRT, keeps the right to live in it for a fixed number of years, and at the end of the term the residence passes to the remainder beneficiaries (or continues in trust for them).

The taxable gift is only the remainder interest — the present value of the beneficiaries' right to receive the home in the future, reduced further for the chance that the grantor dies during the term and the home reverts to the grantor's estate. Depending on the grantor's age, the term, and the §7520 rate, the taxable gift can be well under half of the home's current value.

Example (approximate): A 60-year-old transfers a $2 million residence to a QPRT with a 15-year term and a reversion to the estate if she dies during the term. Using the 5.6% §7520 rate for October 2026 and the IRS mortality table (Table 2010CM), the taxable gift is roughly $690,000 — about a third of the home's value. Exact figures must be calculated by your advisors for the actual month, age and terms.

What Is a QPRT?

A QPRT relies on the time value of money: the right to receive property years from now is worth less than owning it today. By keeping the right to live in the home for a fixed term, the grantor keeps part of the value, and only the remainder (the right to the property after the term) is a gift. Any growth in the home's value after the transfer is also removed from the grantor's estate — if the grantor survives the term.

How a QPRT Works — Step by Step

1. Grantor transfers the residence to the QPRT by deed
2. Grantor retains the right to live in the home for a specified term (e.g., 10 or 15 years)
3. The gift is valued as the remainder interest only, and reported on Form 709
4. Grantor continues living in the home during the term and typically pays its ordinary expenses
5. Term expires: The residence passes to the remainder beneficiaries (typically children) or to a continuing trust for them
6. If the grantor wants to keep living in the home: The grantor must lease it and pay fair market rent to the new owners

Legal Structure & Parties

Grantor/Settlor

• Transfers the personal residence to the QPRT
• Retains the right to occupy the residence during the trust term
• Is usually treated as the owner of the trust for income tax purposes during the term (grantor trust)
• Must survive the trust term for the estate tax benefit to apply

Trustee

• Administers the trust during and after the retained interest period
• During the term: limited duties (title, insurance, compliance with the QPRT rules)
• After the term: distributes the property, or manages it if it stays in a continuing trust
• The grantor can generally serve as trustee during the term; many plans name an independent trustee for any continuing trust after the term

Remainder Beneficiaries

• Typically the grantor's children, or a trust for them
• Receive the residence (or its value) at the end of the QPRT term
• Take the grantor's carryover basis in the home (NOT a stepped-up basis)

IRC §2702 and the Regulatory Framework

Statutory Authority

Under IRC §2702, an interest a grantor keeps in a trust for family members is generally valued at zero, which would make the whole home a taxable gift. IRC §2702(a)(3)(A)(ii) creates an exception for a trust holding a residence used as a personal residence by the term holders, and Treas. Reg. §25.2702-5 sets out the detailed requirements for a "personal residence trust" and a "qualified personal residence trust." A trust that meets those rules lets the grantor's retained right to use the home be valued under the normal IRS tables, so only the remainder is a gift.

Treasury Reg. §25.2702-5(c) — QPRT Requirements

The trust document must include specific provisions. Among the most important:

1. One residence: The trust may hold only one residence for its entire term, plus limited permitted assets (§25.2702-5(c)(5)(i))
2. Limited cash: Cash may be added only for trust expenses (including mortgage payments) expected within six months, for improvements, or to buy a replacement residence within three months under a signed contract; excess cash must be paid to the grantor at least quarterly (§25.2702-5(c)(5)(ii)(A))
3. Income to the grantor: Any trust income must be distributed to the grantor at least annually (§25.2702-5(c)(3))
4. No distributions to others: Principal may not be distributed to anyone other than the grantor during the term (§25.2702-5(c)(4))
5. No commutation: The grantor's interest may not be prepaid (§25.2702-5(c)(6))
6. Cessation of use: If the home stops being used or held for use as a personal residence, the trust stops qualifying, and within 30 days the assets must be distributed to the grantor or converted to a qualified annuity for the rest of the term (§25.2702-5(c)(7)–(8))
7. No sale back to the grantor: The trust must prohibit selling or transferring the residence to the grantor, the grantor's spouse, or an entity they control, during the term and afterward while the trust is a grantor trust (§25.2702-5(c)(9))

In addition, a grantor may not hold term interests in more than two personal residence trusts at once (trusts holding fractional interests in the same residence count as one) (§25.2702-5(a)(1)).

Tax Implications

Gift Tax Calculation

The taxable gift for a QPRT transfer is the remainder interest, calculated using:

• Fair market value of the residence (from a qualified appraisal)
• IRC §7520 rate for the month of the transfer (120% of the federal mid-term rate; 5.6% for October 2026)
• Grantor's age and the IRS mortality table (Table 2010CM), when the trust includes a reversion to the grantor's estate if the grantor dies during the term
• Trust term (number of years)

The taxable gift is smaller with:

• A longer QPRT term (beneficiaries wait longer, and the reversion is more likely to apply)
• An older grantor when a reversion is included (a higher chance under the IRS tables that the home reverts to the estate)
• A higher §7520 rate (greater discounting of the future remainder)

Key Insight: Unlike GRATs (where low §7520 rates are better), higher §7520 rates favor QPRTs because they increase the discount applied to the remainder interest, reducing the taxable gift. The 2026 rates (4.6% in January rising to 5.6% in October) are more favorable for QPRTs than the very low rates of 2020–2021. For an ordinary QPRT, the rate for the month of transfer applies; the option to use either of the two prior months' rates is available only when a charitable deduction is involved.

Estate Tax — The All-or-Nothing Proposition

• Grantor survives the term: The residence — including all growth in value after the transfer — is generally excluded from the grantor's estate, as long as the grantor pays fair market rent for any continued use
• Grantor dies during the term: The residence is included in the grantor's estate under IRC §2036. Because the property is in the estate, the earlier gift is not counted again as an "adjusted taxable gift" (IRC §2001(b)), so the exemption used for the gift is effectively restored. The main loss is the cost of setting up and running the trust

The Step-Up in Basis Problem

This is the QPRT's most significant trade-off:

• When someone dies owning property, the heirs generally receive a stepped-up basis to fair market value (IRC §1014), eliminating the built-in capital gain
• When the home passes through a QPRT and the grantor survives the term, the beneficiaries take the grantor's carryover basis (IRC §1015)
• If the beneficiaries later sell, federal capital gains tax can be as high as 20% plus the 3.8% net investment income tax (23.8%), plus any state tax. Beneficiaries who don't live in the home generally can't use the home-sale exclusion

Example:

• Grantor's basis in residence: $200,000
• Value when the children later sell: $3,000,000
• Built-in gain: $2,800,000
• Federal capital gains tax at the top 23.8% rate: about $666,400 — tax that a step-up at death would have avoided

During the term, because the QPRT is usually a grantor trust, a sale of the home by the trust is treated as a sale by the grantor, so the grantor can generally still use the §121 home-sale exclusion if the ownership and use tests are met.

Who Benefits Under a $15 Million Exemption?

The federal estate and gift tax exemption is $15 million per person in 2026 ($30 million for a married couple), indexed for inflation, with no scheduled expiration under the 2025 tax law. A QPRT trades a future step-up in basis for estate tax savings, so it generally makes sense only when:

• The estate is expected to exceed the federal exemption, so the 40% estate tax saved on the home's value is larger than the capital gains tax the family will owe because of the lost step-up, or
• The family lives in a state with its own estate or inheritance tax at a lower threshold (rules vary by state)

For most families with estates comfortably below the exemption, a QPRT costs more in lost basis than it saves.

The Retained Interest Period

Selecting the Term

The QPRT term involves a trade-off:

Age-Based Illustrations

The table below shows approximate results at the October 2026 §7520 rate of 5.6%, using the IRS's Table 2010CM survival rates and assuming the home reverts to the grantor's estate if the grantor dies during the term. These are illustrations, not recommendations — the right term depends on the grantor's actual health, family history and goals.

Post-Term Arrangements

The FMV Rent Requirement

After the QPRT term ends, if the grantor wants to keep living in the home, the grantor should sign a lease and pay fair market rent to the new owners (the remainder beneficiaries or a trust holding the property for them):

• Living there rent-free or at below-market rent can lead the IRS to argue that the grantor kept the use of the property, pulling it back into the estate under IRC §2036 and undoing the QPRT's benefit
• The rent should be set at fair market value, supported by a rental market analysis, and adjusted over time
• Rent is generally taxable income to the owners and not deductible by the grantor. If the home stays in a continuing trust that is still a grantor trust as to the grantor, the rent may have no income tax effect — your advisor can explain how your trust is set up
• The grantor cannot simply buy the home back: the regulations require the trust to prohibit a sale to the grantor or spouse while it is a grantor trust

The Estate Planning Effect of Post-Term Rent

Fair market rent also moves additional value to the next generation:

• The grantor pays rent to the children (or their trust), which reduces the grantor's taxable estate
• Rent paid at fair market value is not a gift, because it is payment for the use of the property
• Families should weigh this against the cash-flow burden of paying rent on what used to be the grantor's own home

What Qualifies as a Personal Residence

Treasury Reg. §25.2702-5(c)(2) Definition

A "personal residence" for QPRT purposes includes:

• Principal residence: The grantor's principal place of residence
• One other residence: A vacation or second home the grantor uses as a residence within the meaning of IRC §280A(d)(1) (personal use for more than the greater of 14 days or 10% of the days it is rented)
• An undivided fractional interest in either of the above
• Appurtenant structures and adjacent land reasonably appropriate for residential purposes. A mortgage does not disqualify the home; furnishings and other personal property are not included

Spouses can transfer their interests in the same home to a single QPRT, or each can transfer a fractional interest to a separate QPRT.

What Does NOT Qualify

• Rental property held primarily for investment
• Commercial property or property used primarily in a business
• Land beyond what is reasonably appropriate for residential use
• A third QPRT: A grantor cannot hold term interests in more than two personal residence trusts at the same time

Sale or Conversion During the Trust Term

Sale of Residence During Trust Term

If the residence is sold during the QPRT term (to someone other than the grantor or spouse), the trust may hold the sale proceeds in a separate account. The proceeds stop qualifying at the earliest of two years after the sale, the end of the term, or the purchase of a new residence (§25.2702-5(c)(7)(ii)). Within 30 days after that, the trust must (as its terms provide):

1. Use the proceeds for a replacement residence — which then becomes the QPRT property, or
2. Convert to a qualified annuity — paying the grantor an annuity for the rest of the term (similar to a GRAT), or
3. Distribute the proceeds outright to the grantor — which ends that part of the QPRT and brings the cash back into the grantor's estate

Insurance Proceeds and Damage

If the residence is damaged or destroyed, the trust may hold insurance proceeds and has up to two years to repair or rebuild, or to buy a replacement residence (§25.2702-5(c)(7)(iii)).

Formation Requirements

Essential Steps

1. Obtain a qualified appraisal of the residence
2. Check the §7520 rate for the month of transfer (higher is better for QPRTs)
3. Draft the QPRT instrument complying with Treasury Reg. §25.2702-5(c)
4. Execute the trust and transfer the residence to the trustee by deed
5. Record the deed with the county recorder's office
6. Update homeowner's insurance to reflect trust ownership
7. File Form 709 reporting the gift (remainder interest value) for the year of transfer
8. Pay property expenses during the retained interest period (property taxes, insurance, maintenance) as the trust document provides

Title and Insurance

• The deed should be transferred to the trustee of the QPRT (e.g., "[Trustee Name], as Trustee of the [Grantor Name] Qualified Personal Residence Trust dated [Date]")
• Homeowner's insurance should be updated to name the trust as insured or additional insured
• Consider whether the existing owner's title insurance policy continues to protect the trust, or whether an endorsement or new policy is needed

Mortgages

A home can go into a QPRT with a mortgage, but it complicates the plan:

• When the grantor keeps paying the mortgage, principal payments generally add value for the remainder beneficiaries and are treated as additional gifts; the regulations allow cash to be added to the trust for mortgage payments due within six months
• Many mortgages have a "due-on-sale" clause. Federal law (12 U.S.C. §1701j-3(d)(8)) bars lenders from enforcing it for a transfer into an inter vivos trust in which the borrower is and remains a beneficiary, but whether that protection fits a QPRT (especially at the end of the term) should be confirmed, and lender consent is often sought
• Many advisors prefer to pay off or reduce the mortgage before funding a QPRT

Medicaid and Property Tax Effects

• Medicaid: Transferring a home to a QPRT is a transfer for less than fair value. Under federal law, transfers to trusts within the 60-month look-back period before a Medicaid application can cause a penalty period, and the grantor's retained interest may still be counted. A QPRT is an estate tax tool, not a Medicaid planning tool — see our MAPT guide, and check your state's rules
• Property tax exemptions: Homestead exemptions, senior freezes and similar benefits may continue during the term in some states (because the grantor still lives there as a trust beneficiary) but are often lost after the term, when the grantor becomes a tenant. Some states also reassess the home when ownership passes to the children. Rules vary widely by state and county

The Mortality Risk

The All-or-Nothing Gamble

The QPRT is an all-or-nothing proposition for the estate tax benefit:

• Survive the term: The home and its future growth are removed from the estate (as long as fair market rent is paid for any continued use)
• Die during the term: The home is included in the estate largely as if the QPRT had not existed. If the trust includes a reversion to the estate (or a general power of appointment), the home passes under the grantor's estate plan, the gift exemption used is effectively restored, and the heirs generally get a stepped-up basis. The main costs are legal, appraisal and administration fees

There is no partial estate tax benefit — the grantor either survives the full term or gets essentially none.

Mortality Risk Mitigation

1. Shorter terms: Increase the chance of surviving the term (at the cost of a larger gift)
2. Health review: Consider the grantor's current health and family longevity
3. Life insurance: A term policy (often in an ILIT) covering the QPRT term can offset the estate tax if the grantor dies early
4. Split interests with staggered terms: Spouses can each transfer a fractional interest in the home to separate QPRTs, or one grantor can use two QPRTs with different terms, so that not everything rides on surviving a single term

Sample Provision Language

⚠️ DISCLAIMER: The following language is provided for educational and illustrative purposes only.

Retained Use Interest

Post-Term Lease Requirement

Comparison with Other Residence Transfer Strategies

Common Pitfalls & Compliance

1. Dying During the QPRT Term

The all-or-nothing risk. Solution: Choose a term that fits the grantor's age and health; consider life insurance and staggered terms.

2. Failure to Pay FMV Rent Post-Term

Continuing to live in the home without paying fair rent. Solution: Sign a written lease at fair market rent when the term ends; pay and document rent regularly.

3. Loss of Stepped-Up Basis

Not analyzing whether the estate tax savings justify the loss of basis step-up — especially now that the exemption is $15 million per person. Solution: Run the numbers — compare estate tax (federal and state) on the home's projected value with capital gains tax on the built-in gain.

4. Property Improvements During the Term

Major improvements paid for by the grantor add value for the remainder beneficiaries and can be treated as additional gifts. Solution: Plan improvements with your advisor, or consider deferring major projects until after the term.

5. Using the QPRT for Rental Property

Placing investment or rental property in a QPRT — it doesn't qualify. Solution: Only use a residence that meets the Reg. §25.2702-5(c)(2) definition, and keep using it as a residence during the term.

6. Not Recording the Deed

Failing to properly transfer and record title. Solution: Execute and record the deed promptly when the QPRT is created.

How Trust Wizard Helps

A QPRT runs for years and has key dates at the start and end of the term. Trust Wizard is an organizer and educational tool. It is not a law firm, does not give legal or tax advice, and does not by itself create a valid trust. Your information stays on your device.

• Document Wizard: Start from fill-in drafting templates — a QPRT instrument plus a Form 709 Gift Tax Return Memo and state forms such as a trust transfer deed and affidavit of trust — as starting drafts for your attorney.
• Document vault: Scan and store the recorded deed, appraisal, insurance and, after the term ends, the lease on your device.
• Compliance tracker: A built-in "Annual Trustee Meeting" reminder shows whether it is up to date or due.
• Successor File: Create an encrypted, passphrase-protected file that a successor trustee can open to see the trust's documents.
• Enlightenment Hub: Read the QPRT education module before you meet your attorney.

The app does not calculate QPRT gift values or track when the retained term ends, so calendar that date with your attorney. Every template is a starting draft and must be reviewed by a licensed attorney in your state before anyone signs it. See all features.

Sources & Further Reading

• Treas. Reg. §25.2702-5: Personal residence trusts and QPRTs (Cornell LII)
• IRC §7520: Valuation tables and the monthly rate (Cornell LII)
• IRS: Section 7520 interest rates
• Treas. Reg. §20.2031-7: Actuarial tables, including Table 2010CM (Cornell LII)
• IRC §2001(b): Adjusted taxable gifts (Cornell LII)
• Treas. Reg. §1.121-1: Home-sale exclusion, including homes held in grantor trusts (Cornell LII)
• 12 U.S.C. §1701j-3: Due-on-sale clauses and the inter vivos trust exception (Cornell LII)
• IRS Rev. Proc. 2025-32: 2026 inflation adjustments ($15M basic exclusion)