Mullen and Iannarone, P.C.
Serving the legal needs of corporations, individuals and
families of Suffolk County since 1972

The use of a qualified personal residence trust

New York residents who are looking to potentially reduce their estate tax burden may wish to form a qualified personal residence trust. The trust allows an individual to one day transfer ownership of a personal or secondary residence to a designated beneficiary. Often, the beneficiary is a child or grandchild, but it could theoretically be anyone an individual wanted to transfer the property to.

It should be noted that an individual needs to still be alive at the end of the trust for it to be effective. Otherwise, the property is pulled out of the trust and put back into the grantor's estate. Assuming that the individual is still alive at the end of the trust's term, it is transferred to the beneficiary, and the value for estate and gift tax purposes is discounted due to the delayed receipt by the beneficiary. However, if the property is placed back into the estate if the grantor dies before the expiration of the trust, it is valued at its current amount for federal estate tax purposes.

During the term of the trust, the former owner may live in the house without paying rent. However, rent must be paid to the beneficiary once the property has been transferred. Failure to do so could render the trust invalid. Therefore, it may not be worth creating for those who are loathe to pay a child or grandchild rent to remain in their own homes.

Individuals who don't have an estate plan may want to consult with an attorney about how to create one and exert greater control over personal assets after death. Those who already have such a plan may want to consider reviewing or updating an existing estate plan if life events such a s a divorce or a birth of a child or grandchild dictate it.

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