Anyone know anything about QPRT's?

Question

If the Grantor outlives the term of a QPRT and wishes to continue living in the house while paying rent to the Trustees, who is responsible for the property tax? Also, does any paperwork, etc. need to be taken care of? Thanks.

Answer 1

Depending on when the QPRT was drafted and what the terms of the trust are, the answer may vary. First, you should look at the governing trust document itself. The house may continued to be owned by the trustees of the QPRT or it may now be owned by the beneficiaries themselves. Second, the QPRT might address the issue of rental by the Grantor (most trusts will not have any provision about this but some more recent ones might). Once you have considered these two things, you know who "owns" the house and whether there is any agreement regarding continued rental. Assuming the trust says nothing about rental, it is essential that the new owners of the house and the Grantor enter into a fair arms-length rental agreement at fair rent. If the Grantor does not pay fair rent, the IRS will seek to void the QPRT and include the value of the residence in the Grantor's estate. You thus need a formal lease between the Grantor and the owners that will specify the amount of the monthly rent and who is responsible for various expenses (heat, water, utilities, property tax, etc.) You can have a lawyer help you with this or can probably find a "form" lease at a stationary store or online.

Answer 2

A the end of the term of the QPRT, the home becomes property of the beneficiaries and the trust is dissolved. Because the trust no longer exists, the trustees are no longer the trustees. There is nothing to prevent the grantor from renting the property from the beneficiaries. If they are relatives, they may be willing to allow the grantor to continue living there rent free. As the legal owners, the beneficiaries would be legally responsible for the property tax, but any rental agreement could require the grantor to actually pay.