Qualified Personal Residence Trust – QPRT

and finance Allah shmoop What is a Q Bert No

Q P Artie What is it Qualified Personal resident's trust

and basically it's illegal trust into which you put your

home I eat your residents a k a The are

there in the Cooper thing for all kinds of beneficial

tax reasons Well people create Q parts so that they

can transfer their homes and usually in a tax advantaged

or low taxi kind of way to their kids Loved

ones Or you know members of the Justice League Well

the Golden Ticket in Q Bert is the notion of

discounted cash flow Are discounting future value to be a

lower number in its present value that is the value

of the home is determined by an SS or usually

not Zillow yet and note that the government has a

cap or a maximum dollar value that can be transferred

from one generation to the next without suffering Severe taxes

like that's around 12,000,000 bucks these days So it's in

the interest of those with assets to transfer to make

that value appear to be as low as possible It

should be conceivable that if the home is to be

transferred not today but in a decade or even to

well then that future value of that home could be

re construed as being worth a lot less than it's

worth today and the official legal transfer happens in a

decade or two So it's going to transfer using up

a lot less of that 12 ish $1,000,000 estate tax

minimum ceiling there before you really get taxed And this

all makes sense If you think about real estate in

the context of well normal commercial real estate like apartment

buildings in office buildings that is If someone gave you

an apartment building but told you that you couldn't collect

any rent from it for 18 years than that building

would carry a significant value Discount today compared to what

it would carry were given to the beneficiary this week

because you collect 18 years worth a rent before the

other guys begin collecting So going to Cooper the home

is that essentially given in parts Teo say the beloved

children of the owners and the value of the asset

being transferred gets the benefit of what is essentially present

value or discounted cash flow evaluations such that the government

allows for the home to retain a flat steady UN

inflated valuation while for tax purposes well the value of

the home is discounted Meaningful e In the future for

example the owners of the home might have a nice

little pad with a market value today of well $5,000,000

they're legally allowed to transfer up to 12,000,000 bucks to

their kids with no estate tax If they just transferred

the home today well they'd use up well 5/12 of

their total tax free estate transfer option But the parents

have other assets beyond the house They'd also like to

transfer with no estate tax write like stocks and bonds

and maybe some other real estate Well this is where

the Q part comes in Trying to mitigate much of

the $5,000,000 in assess value of the home by discounting

its transfer value a decade and change into the future

So let's say the transfer value was pegged at 15

years from now The discount rate of 5% per year

Compound ID Will the duration and years in the discount

rate er set by a government formula based largely on

what government bond paper is trading at in a given

time period and the age of the parents and other

expected structural life issues and life expectancy and a whole

bunch of other elements get a bald in that mush

pot of regulatory compiling So the government comes up with

a discount rate or a number so that $5,000,000 house

living inside of a queue pert with children still in

grammar school doesn't need to be traded To them is

an asset for say 15 2030 years Something like that

Big note You must be alive for the entire vesting

period of your Q Bert If you die well basically

then everything reverts back to a fully taxed state and

in some states hi California that fully tax status can

be painful right You don't get the estate waiver discount

minimum there So that home then well we're guessing here

is discounted at a rate of $5,000,000 divided by one

plus point No Five to the 15th Power right 15

years compounded If you do the math there that's roughly

two and change to 20.1 something like that meaning that

the transfer price of that $5,000,000 home to the children

then takes up well instead of 5/12 of the tax

free transfer It takes up something closer to 2/12 of

the tax free estate transfer rights only using up two

of the 12,000,000 Because the discounted or present value of

the home inside of Cuba it has gone from being

worth $5,000,000 current market value to being $5,000,000 divided by

roughly two and change or about two point 4,000,000 in

future assessed estate transfer value Yes that's the fancy phrasing

So yes there are costs in setting up a Q

Bert But usually the benefits of the kid's vastly outweigh

the 10 or 20 grand and change and setting one

of these puppies up especially if the dough is on

one of this kind of big multi $1,000,000 scale and

the ever big benefit Well you can actually live in

the home while you have in theory given it away

assuming you can you know still do stairs Anyway when

you are dealing with a homeowner who has that kind

of cash well there's always a chance he might be 00:04:48.862 --> [endTime] this guy Yeah oh