QPRTs: A Practical Primer for 2026

If a significant portion of a client's net worth is tied up in a primary residence — or a vacation property — a Qualified Personal Residence Trust (QPRT) is one tool worth understanding in the estate planning toolbox.

What Is a QPRT?

A QPRT is a type of irrevocable trust that allows a homeowner to transfer a residence to children or other beneficiaries at a reduced gift-tax value, while continuing to live in the home rent-free for a set number of years (the "term"). Once the term ends, continued occupancy generally should be under a bona fide lease at fair market rent — this is not optional, and it's a point worth flagging up front since it's easy to focus on the rent-free period and overlook what comes after. Rent that is below market, or a lease that doesn't reflect fair rental value, can create estate inclusion risk under IRC Section 2036, so the rent amount is typically reviewed and adjusted annually to remain supportable.

At the end of the term, the house passes to the remainder beneficiaries. Structurally, a QPRT is a type of Grantor Retained Income Trust (GRIT). Ordinarily, under Section 2702 of the tax code, when someone retains an interest in a trust for the benefit of a family member, that retained interest is valued at zero — meaning the entire value of the property would otherwise be treated as a taxable gift. QPRTs are a specific, regulatory carve-out from that rule. Because the trust holds only a personal residence, the retained right to live there is valued under normal actuarial tables (using the Section 7520 rate) rather than being valued at zero. That is the mechanism that makes the technique work.

Technical Requirements to Keep in Mind

QPRTs are subject to a fairly specific set of regulatory requirements. A few worth noting early, since they affect whether a given property or structure will even qualify:

• ‍Eligible residence. A QPRT generally may hold one principal residence or one other residence, such as a vacation home, or an undivided fractional interest in either.‍
• Limits on trust assets. Furnishings and other personal property generally should not be transferred to the QPRT along with the residence. Where the home includes secondary use, such as a home office, that use generally should remain secondary to the residential use of the property in order to preserve the home's character as a personal residence.‍
• Required governing-instrument provisions. The trust document must include specific provisions to qualify as a QPRT, including a requirement that all trust income be distributed to the term holder at least annually, limits on principal distributions during the term, restrictions on the types of assets the trust may hold, and restrictions on the sale or transfer of the residence back to the grantor or to other related parties. Drafting should track the specific regulatory requirements closely rather than relying on general trust boilerplate.‍
• No annual exclusion. Because the taxable gift is a future interest (the remainder beneficiaries don't receive present enjoyment of the property until the term ends), the gift generally does not qualify for the annual gift tax exclusion. The full taxable gift amount typically uses lifetime gift tax exemption or is subject to gift tax.

How the Gift Is Valued — A Simple Example

The taxable gift isn't the full value of the house — it's only the present value of the remainder interest that beneficiaries will eventually receive. As an illustration: a 70-year-old grantor funds a QPRT with a home worth $1,000,000, using a 15-year term and a 4.8% Section 7520 rate. Based on IRS actuarial tables, the present value of the retained interest (the right to live in the home, plus the mortality-weighted reversionary interest) is approximately $737,000, leaving a taxable gift of roughly $263,000 — about 26% of the home's value, rather than the full $1,000,000. This is a simplified illustration; actual results depend on the grantor's age, the term selected, and the Section 7520 rate in effect at the time of transfer.

This benefit depends on the grantor surviving the retained term. If the grantor dies during the QPRT term, the residence is included in the grantor's gross estate under IRC Section 2036, and the anticipated gift and estate tax savings from the technique are not realized.

Why It Can Reduce Gift Tax Exposure

The value of the taxable gift is reduced by two factors:

• The retained right to live in the home for the term (valued using the IRS's Section 7520 rate), and
• The mortality risk that the grantor may not survive the full term (using IRS actuarial tables, which generally assume shorter life expectancies than commercial insurance tables).

A higher Section 7520 rate generally increases the value attributed to the grantor's retained right to live in the home, which can make the taxable gift smaller. For context, the Section 7520 rate rose to 5.2% for July 2026, up from 4.6% earlier in the year. This is a relevant data point when evaluating the technique, though the appropriate term, structure, and overall fit still depend on the specific client's circumstances.

Who Is This Generally Suited For?

QPRTs are typically considered for clients with a substantial portion of net worth concentrated in one or two residences. An individual may generally fund up to two QPRTs (a primary residence and one other residence); a married couple can generally use up to four between them, absent separate primary residences. Older grantors tend to see larger discounts relative to younger grantors, even with a relatively short term (1–3 years), because more of the value reduction comes from mortality-based assumptions rather than the time value of the retained interest. QPRTs are generally considered less effective for younger clients for the same reason.

Best-Fit Clients

Given the higher 2026 exemption, a QPRT is more likely to be worth evaluating for clients who have one or more of the following:

• A high-value residence relative to the rest of the estate
• Expected future appreciation in the residence
• State estate tax exposure, particularly where the state exemption is well below the federal amount
• Concentrated wealth in real estate rather than diversified assets
• A desire to make additional wealth transfers without using as much lifetime gift and estate tax exemption

Trade-Offs and Practical Considerations

QPRTs come with several trade-offs worth discussing with clients:

• ‍Loss of flexibility. Once the trust is established, the arrangement is largely fixed for the term.‍
• Basis considerations. If the QPRT succeeds in removing the residence from the taxable estate, the beneficiaries generally do not receive a basis step-up at the grantor's death, which can increase capital gains exposure on a future sale — a consideration that has grown more significant given real estate appreciation in recent years.‍
• Rent required after the term. As noted above, continued occupancy after the term generally requires a bona fide lease at fair market rent. The rent arrangement should be supportable — ideally based on an appraisal or other documented evidence of fair rental value — and adjusted annually, since below-market rent or a lease that doesn't reflect fair rental value can create estate inclusion risk under IRC Section 2036.
• ‍Less suited to generation-skipping planning. QPRTs are usually not ideal for generation-skipping planning because GST exemption generally cannot be effectively allocated until the retained term ends, meaning the exemption is applied using the later, undiscounted property value rather than the initial discounted gift value.

H.R. 1, 119th Congress (Pub. L. No. 119-21), commonly known as the "One Big Beautiful Bill Act” (H.R. 1)

The One Big Beautiful Bill Act, signed into law in July 2025, made the federal estate, gift, and generation-skipping transfer tax exemption permanent and raised it to $15 million per individual starting in 2026 (indexed for inflation thereafter, or roughly $30 million for a married couple). This resolved the previously scheduled sunset that would have reduced the exemption significantly at the end of 2025.

This change doesn't make QPRTs obsolete, but it does shift the calculus for many families. With a substantially higher permanent exemption, the urgency around lifetime gifting is reduced for clients whose estates fall well within the new threshold. QPRTs remain relevant primarily for a narrower group of clients (see the callout above) — for example, those whose wealth is heavily concentrated in real estate that has appreciated well beyond the exemption amount, those with state-level estate tax exposure at a lower threshold than the federal exemption, or those who, for other planning reasons, are evaluating the current Section 7520 rate environment. QPRTs are not necessarily "back" or uniformly more advantageous because of H.R. 1 — the exemption increase and the current rate environment are both relevant factors that should be weighed together, on a client-by-client basis.

Summary

QPRTs remain a technical, narrowly-tailored planning tool. Their effectiveness depends on the grantor's age, the term selected, the prevailing Section 7520 rate, and careful attention to post-term rent and GST/ETIP issues. For families with valuable residences, expected appreciation, or state estate tax exposure, a QPRT may still be worth evaluating as part of a broader estate plan.

Because QPRTs are highly technical, the outcome depends on proper drafting, valuation support, survival through the retained term, post-term fair-market-rent compliance, and state estate tax considerations.

For more information about QPRTs or any other tax-related inquiries, please reach out to HHM at 423.756.7771.

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