Although most of us remember the Clintons championing higher estate taxes, it seems they have enlisted the help of an estate planning attorney to reduce their own estate tax. Specifically, the Clintons are using a qualified personal residence trust (QPRT) to reduce the size of their taxable estate, thereby lowering their estate tax.
The Clintons’ use of a qualified personal residence trust was outlined in a recent article by Richard Durbin. Bloomberg.com (June 16, 2014) “Wealthy Clintons Use Trusts to Limit Estate Tax They Back.” The internal mechanics of a QPRT are quite difficult to explain, but the concept of how they work is quite simple. Basically, a residence is transferred out of an individual’s personal estate into an irrevocable trust. For gift tax purposes, the value of the residence is frozen as of the date of the transfer. Once the residence is in the trust it can continue to appreciate in value—tax free.
Although the residence is in the Trust the individual retains the right to use the home for a set term of years. After the term of years the residence transfers to the Trust’s beneficiary. If drafted correctly, the trust can also allow the individual to continue to use the home past the set term of years so long as they pay fair market rent. The rent payments, in turn, further reduce the size of the individual’s taxable estate.
A QPRT is just one of many techniques used to reduce estate taxes. A QPRT reduces estate taxes by reducing the size of a person’s taxable estate. While a QPRT may be good for the Clintons it may, or may not, be good for you. However, reducing your estate tax is good for everyone and it can be accomplished many different ways.
About the Author: Aaron Shahan is the founder of Atlas Law, PLC. Aaron dedicates his practice to virtually all aspects of estate planning, elder law and probate.