Advanced TopicsAdvanced5 min read

QPRTs: passing your home to heirs at a discount

How a qualified personal residence trust freezes your home's value for gift-tax purposes, lets you keep living there, and shifts future appreciation to your kids — if you outlive the term.

A qualified personal residence trust (QPRT) is a way to give your home (or vacation home) to your children at a deeply discounted gift-tax cost while continuing to live in it for years. You transfer the residence into an irrevocable trust, retain the right to live there rent-free for a set term, and at the end the home passes to your heirs — with all the appreciation during the term out of your estate. The catch: you must outlive the term.

Why the gift is discounted

Because you keep the right to live in the home for the term, the gift to your heirs is not the full value today — it is the value of what they receive LATER, discounted for the years they must wait and for the IRS hurdle rate. The longer the term and the higher the hurdle rate, the smaller the taxable gift. A $2 million home might generate a taxable gift of well under $1 million, using far less of your exemption than an outright transfer.

The mortality gamble

If you die BEFORE the term ends, the entire home is pulled back into your estate as if the QPRT never happened — you are no worse off, but the strategy fails. So QPRT terms are chosen to be long enough to shrink the gift meaningfully, yet short enough that you are likely to outlive them. It is a calculated bet on your own longevity.

What happens after the term

The home now belongs to your heirs (or a trust for them), with future appreciation already outside your estate.
If you want to keep living there, you must pay fair-market rent to the heirs — which is actually a feature: rent moves MORE money to them free of gift tax.
Because it was a gift rather than an inheritance, the home carries your original cost basis (no step-up) — a real tradeoff to weigh against the estate-tax savings.

QPRT tradeoffs at a glance

Upside	Downside
Freezes home value; shifts appreciation out of estate	Home passes with carryover basis (no step-up)
Discounted taxable gift vs. outright transfer	You must outlive the term or it fails
You live there rent-free during the term	Irrevocable — you give up ownership
Post-term rent moves more wealth to heirs tax-free	Complex drafting and appraisal required

The QPRT bargain

Basis vs. estate tax is the real question

QPRTs shine for those clearly above the estate-tax exemption, where avoiding 40% estate tax on a valuable, appreciating home outweighs losing the step-up in basis. For families under the exemption, the lost step-up often makes a QPRT counterproductive. This calculation is exactly what an estate attorney and CPA are for; nothing here is individualized advice.

The bottom line

A QPRT moves a home to your heirs at a discounted gift-tax cost, keeps you living there during the term, and pushes future appreciation out of your estate — provided you outlive the term. The main tradeoffs are the mortality risk and the loss of the step-up in basis, which is why QPRTs mainly make sense above the estate-tax exemption. Post-term rent is a bonus wealth-transfer tool. As always with irrevocable trusts, this is specialist work.

Check your understanding

1 of 3

Why is the taxable gift in a QPRT smaller than the home's current market value?

Not quite — try again.

The Worth letter

Get smarter about money every week

One email, no spam — practical guides and Worth updates. Unsubscribe anytime.

Put this into practice

Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.

Start free trial