Saving on Taxes

Apparently, Alexis de Tocqueville once observed: “In no other country in the world is the love of property keener or more alert than in the United States.”

So, with the housing prices going down, people are scrambling to recover some of their losses and make better with what they have. Some are looking into setting up a qualified personal residence trust, or a QPRT.

Here's an example form a report in Financial Times:

Assume, for example, that a second home owned by a grantor aged 65 is worth $500,000 and the IRS’s assumed interest rate is 6 per cent. If the grantor establishes a 10-year QPRT, the total value of his or her retained interest is $287,760. The taxable gift is only $212,240.

If the grantor survives the 10-year term and the residence appreciates 4 per cent a year to $740,122, the potential estate tax savings at 50 per cent will be $263,941.

According to the same report "a QPRT makes the most sense when there is a vacation home that a grantor would like to keep in the family."