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Is Now a Good Time to Give Your House to Your Children?

  • November 25th, 2008

While falling real estate values aren't good news, if you have a taxable estate it could be an opportunity to give your house to your children while still living in it. You may save on gift and estate taxes by moving your home into a qualified personal residence trust (QPRT).

A QPRT works by allowing homeowners to put their house in a trust for a period of years (usually 10 years). The homeowner will have to pay a gift tax on the transfer, but due to a complicated formula that takes current interest rates into account, the gift tax is reduced. During those 10 years, the homeowner still lives in the house and pays all expenses, including property taxes. After 10 years, the home transfers to the beneficiaries of the trust. The beneficiaries will own the home and it won't be subject to estate tax. However, if the original homeowners wish to remain in the house after the trust ends, they will have to pay rent.

According an article in the Wall Street Journal, if you are interested in a QPRT, now may be a good time to set one up because lower real estate values means you will lock in a lower gift tax rate and the house will accumulate value outside of your estate.

There are many things to consider before setting up a QPRT. A QPRT only makes sense if you think your house will bring your estate above the estate tax exemption, which in 2009 will be $3.5 million for single individuals and $7 million for couples with proper planning. (The estate tax is scheduled to be eliminated for the year 2010 and then in 2011 the estate taxation rules will revert to those prevailing in 2002, when the exemption was $1 million, although Congress is likely to change the law before this happens.)

Another consideration is that if you die before the 10-year period ends, the house will revert to your estate. In addition, the trust is irrevocable, so you can't change your mind after it is created. Also, some estate planners don't recommend a QPRT when interest rates are low.

To find out if a QPRT is right for you, contact an estate planning attorney. Click here to find one near you.

For the article from the Wall Street Journal, click here.

Local Elder Law Attorneys in Ashburn, VA

Margaret O'Reilly

Margaret A. O'Reilly, PC
Herndon, VA

William Fralin

The Estate Planning & Elder Law Firm PC
Bethesda, MD

Evan Farr

Farr Law Firm
Fairfax, VA


Last Modified: 11/25/2008

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