casemark/qprt

Qualified Personal Residence Trust (QPRT) Agreement

Drafts an irrevocable QPRT transferring a personal residence to remainder beneficiaries at a reduced gift tax value while the grantor retains rent-free occupancy for a specified term. Compliant with IRC §2702 and Treas. Reg. §25.2702-5(c).

Prerequisites

Gather before drafting:

1. Parties — Grantor, initial trustee, and all remainder beneficiaries (full legal name, address, DOB, relationship, SSN/TIN, percentage share)
2. Property — Legal description from deed, street address, tax parcel number, county/state; confirm principal vs. qualified secondary residence per Treas. Reg. §25.2702-5(c)(2)(i)
3. Valuation — Qualified appraisal of FMV as of anticipated transfer date
4. Planning parameters — Grantor's age, health/longevity factors, desired retained term (years), applicable IRC §7520 rate (transfer month or either of two preceding months)
5. Existing estate plan — Prior gifts, lifetime exemption usage, will/revocable trust, GST exemption allocation history
6. Governing law — State of situs; note if grantor domicile differs

Trust Instrument Articles

Art. I — Preamble & Definitions

• Identify grantor, trustee, execution date, governing law state
• Declare trust irrevocable; recite QPRT intent under Treas. Reg. §25.2702-5(c)
• Define: Residence, Retained Interest Term, Term Expiration Date, Remainder Beneficiaries, §7520 Rate, Qualified Personal Residence

Art. II — Trust Property & Permitted Holdings

| Item | Requirement | |---|---| | Exhibit A | Verbatim legal description; all easements and appurtenances | | Cash holdings | ≤ 6 months' operating expenses + improvement/replacement reserve (Treas. Reg. §25.2702-5(c)(5)(ii)) | | Sale of residence | Replacement purchase within 2 years; excess → grantor distribution or GRAT conversion | | Casualty/destruction | Insurance proceeds to repair/replace; if infeasible → reversion or GRAT conversion |

Art. III — Retained Interest Term & Grantor's Rights

• Exact term (years), commencement date, calculated Term Expiration Date
• Retained rights: exclusive rent-free occupancy, fixtures/furnishings use, right to exclude; personal and non-transferable
• Grantor responsible for ordinary maintenance; trustee oversees property condition
• Third-party rental only if grantor uses property ≥ greater of 14 days/year or 10% of rented days (Treas. Reg. §25.2702-5(c)(2)(i))
• Death during term: Full date-of-death FMV included in gross estate under IRC §2036(a); gift tax benefit eliminated

Art. IV — Post-Term Occupancy

• No occupancy right post-term absent arm's-length lease at FMR
• Rent paid in cash (check/ACH) under formal written lease
• FMR failure → IRC §2036(a)(1) estate tax inclusion risk
• If reduced-rent occupancy permitted, document that estate tax inclusion results

Art. V — Remainder Beneficiaries & Distribution

• Each beneficiary: name, address, DOB, relationship, SSN/TIN, percentage (must total 100%)
• Contingent remainder: deceased beneficiary's share → descendants per stirpes
• Election: outright distribution vs. continuing trust (address occupancy, rent allocation, buy-sell, expense allocation)
• Deadlock: trustee authority to order appraisal and compel sale within [X] days of term expiration

Art. VI — Trustee Powers & Limitations

Authorized: maintain/repair/improve residence; pay taxes, assessments, insurance; hold cash within Treas. Reg. §25.2702-5(c)(5)(ii) limits; engage contractors

Prohibited during term: distribute to anyone but grantor (except operating expenses); sell/encumber without grantor's written consent (any sale must comply with replacement/GRAT rules)

Fiduciary duties: loyalty, impartiality, duty to inform; annual written accounting

Art. VII — Trustee Succession & Removal

• Successor trustee(s) on death, resignation, or incapacity (two-physician certification or guardian appointment)
• Resignation: 60-day written notice; removal by majority beneficiary vote after term
• Grantor's removal power during term: limited to replacement with independent trustee (avoid IRC §2036)

Art. VIII — Tax Status & Reporting

| Item | Rule | |---|---| | Income tax | Grantor trust (IRC §§671–679); all items on grantor's 1040 | | Gift tax | Form 709 in transfer year; gift = FMV − actuarial retained interest (§7520 + Pub. 1457) | | GST | If skip persons among remaindermen, allocate on full FMV (not discounted gift) | | Death during term | Full FMV in gross estate (IRC §2036(a)); stepped-up basis | | Survival of term | Carryover basis = grantor's adjusted basis + gift tax on appreciation (IRC §1015) |

Art. IX — Termination Events

| Event | Result | |---|---| | Grantor survives term | Deed transfer; final accounting; basis documentation | | Death during term | Beneficiaries notified; estate administration; inclusion applies | | Disqualifying event | Reversion to grantor OR GRAT conversion (Treas. Reg. §25.2702-3); include conversion mechanics |

Trustee duties continue until all property distributed, returns filed, and administration complete.

Art. X — Administrative Provisions

• Governing law: State of situs; disputes in designated jurisdiction courts
• Severability: Reform to minimum extent; §2702 qualification controls interpretation
• Amendment: No changes to beneficial interests; administrative amendments for QPRT qualification or scrivener's errors only
• Notices: Written; personal delivery, certified mail (RRR), or overnight courier

Art. XI — Spendthrift & Creditor Protection

• No voluntary/involuntary transfer, assignment, or encumbrance of beneficiary interests
• Creditors cannot reach trust assets by attachment, garnishment, or execution
• Grantor's retained interest may be reachable by grantor's creditors during term (jurisdiction-dependent)
• Address exception creditors (child support, alimony, tax authorities) per state law

Art. XII — Execution & Exhibits

Signature blocks: Grantor (acknowledges irrevocability and tax consequences), Trustee (accepts fiduciary duties), two disinterested witnesses, notarial acknowledgment (seal, commission expiration)

Exhibits: (A) Verbatim legal description from deed; (B) Beneficiary schedule with identifying information and percentage interests

Post-Execution Checklist

• [ ] Record deed from grantor individually to grantor as QPRT trustee (local recording requirements; transfer tax declaration/exemption)
• [ ] File Form 709 by April 15 of following year; attach agreement and appraisal
• [ ] Update property/casualty insurance to name trust as insured
• [ ] Notify property tax authority of ownership change
• [ ] Obtain liability insurance in trust name
• [ ] Establish FMR lease protocol if post-term occupancy anticipated
• [ ] Begin annual trustee accounting from transfer date

Critical Compliance Points

• §7520 rate: Choose transfer month or either preceding month — higher rate = larger retained interest = smaller taxable gift
• Term length: Must not exceed actuarial life expectancy; shorter terms reduce mortality risk but reduce savings
• Residence limit: One principal + one secondary residence in QPRTs simultaneously (Treas. Reg. §25.2702-5(c)(2)(i))
• Grantor as trustee: Permissible; use independent successor to avoid §2036 on removal
• Post-term rent: Must be FMR, actually paid, documented — most common compliance failure
• GST allocation: Based on full FMV, not discounted gift amount
• Basis tracking: Maintain grantor's adjusted basis records throughout; critical for beneficiary's future sale
• [VERIFY] Rev. Proc. 2003-42 safe harbor language — confirm no superseding IRS guidance
• Jurisdiction: State-specific recording, transfer tax, and homestead rules vary; confirm before executing deed