Checklist: QPRT

A Qualified
Personal Residence Trust (“QPRT”) is an estate planning technique used
to leverage a gift of your principal residence or vacation home out of your
estate at a significant discount. The technique, when successful (which
requires your outliving the term of the trust) can save substantial estate taxes.
However, to succeed, you must have all your QPRT
ducks in a row. Not a simple task considering that many different professionals
are involved. Unless you’ve expressly confirmed that one professional is
honcho’ing the plan, make sure you have all the following documents and steps
addressed. Too often taxpayers try to address many of these steps to control
professional fees and the steps are ignored or only partially completed,
undermining the objectives:

√Trust Agreement:

Be sure you have a signed
original of the QPRT agreement. The agreement should be dated (too often
trustees fail to fill in the date in the blank provided). Signatures should be
witnessed and/or notarized as required in the document. The house to be
transferred to the trust should be indicated in the trust or an attached
schedule. In many plans there may be two QPRT agreements as ½ of the house is
often transferred to a QPRT for the husband, and ½ to a QPRT for the wife. If
there are any questions on these items contact your estate planning attorney.

√Tax Identification Number:

A copy of the IRS
documentation assigning the number should be saved. If you cannot find the
information, call your accountant.

√Deed:

You should have an original deed that
reflects the stamp of the local recording office (e.g. the County Clerk) and
the book and page number where recorded. The deed should be consistent with the
manner in which the QPRT trust agreement was structured. So, if you and your
spouse owned the house jointly (which is common) but each transferred ½ the house
to your respective QPRT, then you should have a deed from the two of you as
husband and wife to the two of you as tenants in common (so that you each own a
divisible half interest to transfer). After the date that deed is recorded you
should have an original recorded separate deed from each of you to your
respective QPRT. The date on the deeds to the QPRT and their recording should
be after the dates on the deed changing the title to tenants in common. The
deeds transferring the house into the QPRT should ideally be dated the same
date as the QPRT. If you’re missing any of these items contact your real estate
attorney or estate planner (depending on who prepared the deeds).

√Appraisal:

An appraisal confirming the value of the house when given to
the trust, and any discounts if less than 100% was given, is essential. If you
cannot find a copy contact the appraiser used to obtain one.

√Gift Tax Return:

A gift tax return should have been filed reporting the gift
of the house to the trust. If you have a complete copy of the filed return, it
may have many of the other documents  and information attached (deed, appraisal, basis calculation,
etc.). If a gift tax return was not filed, or if you’re not sure, call your
accountant or estate planner (depending on who prepared the return).

√Income Tax Return:

Some accountants file a Form 1041 trust income tax return
with an attached statement indicating that the QPRT is a “grantor trust” and that all deductions (there should
be no income unless it was converted to a QAT on
the sale of the house) are reported on your personal return. If an income tax
return was not filed, or if you’re not sure, call your accountant.

√Insurance:

Your property and casualty insurance, and title insurance,
should have been updated to reflect the QPRT as owner, and it should also list
the trustees as insured. If you’re not certain, call your insurance agent.

√Mortgage:
If there is, or was, a mortgage or home equity line, a copy
of the mortgage or line, and the documents and steps taken to address it in the
context of the QPRT should be saved. Payment of principal on your home mortgage
would constitute additional gifts to the QPRT each time you made a payment.
Different estate planners address this issue in different ways (the simplest
being having you pay off any mortgages before the transfer to the QPRT). The
documents confirming how you implemented this plan should be saved. If you’re
not clear and had a mortgage, contact your  accountant and estate planner.