Qualified Personal Residence Trust

The most popular strategy for protecting the family home from lawsuits and claims is called the Personal Residence Trust. We use this technique because the home can’t be placed directly in the Family Limited Partnership or an LLC without jeopardizing the important tax advantages of the mortgage interest deduction and the ability to avoid up to $500,000 of gain on sale. Although there is no clear law on the subject, it would be foolish to risk a denial of these benefits.

The Qualified Personal Residence Trust (QPRT) is a grantor-type of trust, specifically permitted under the Internal Revenue Code. You or you and your spouse can be the trustees of the trust. As such, you have full power to buy, sell, or refinance the property. The interest deduction is reported directly on your tax return, and all of the other advantages of home ownership are preserved. The Family Limited Partnership/LLC is designated as the beneficiary of the trust. In this manner, your home receives all the protection provided by these entities without creating any tax difficulties.

Below is an example illustration of how a Personal Residence Trust Plan would look.