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Qualified personal residence trusts may help with gift taxes

Wanting to bequeath real estate to loved ones is common for individuals in Arkansas and elsewhere. However, some financial repercussions can stem from transferring such property to another individual, such as gift tax. Because most parties want to limit the amount of taxation a loved one faces when receiving a gift or bequest, qualified personal residence trusts may be useful.

A QPRT allows the grantor to remain living in the home for a certain period of time with retained interest before the ownership of the home transfers to the beneficiaries. After that time period ends, the property's interest transfers to the beneficiaries as remainder interest. This may seem complicated, but it allows the property owner to maintain a portion of the value of the home, which means that the gift value becomes lower than its fair market value. This in turn can result in lower gift tax for beneficiaries.

Of course, this plan only works properly when the grantor outlives the terms of the trust. If the person dies before the allotted time period ends, the home is still considered part of his or her estate and is subjected to the applicable taxation. As a result, determining the length of time before the property transfer can be difficult.

The idea of utilizing qualified personal residence trusts may seem foreign to many Arkansas residents. Still, it could have useful benefits that they wish to take advantage of once they gain more information. Discussing this particular option with attorneys experienced in working with these planning tools could help parties better understand this option.

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