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Jim and Martha, 60 and 58 years of age, set up a QPRT for their
$1 million home. Their son is the trustee and their son and daughter
are the beneficiaries. The home is transferred to Jim Junior, trustee
of the Jim & Martha Qualified Personal Residence Trust UDA 5/1/2004*,
and Jim & Martha retain a right to live in the home for 20 years.
The value of the gift is only $182,000 after deducting the life
estate they have retained. They now file a gift tax return in this
amount. No tax is due since this gift is well within their estate
tax exemption.
Had they not set up the QPRT, in 20 years the home would be worth
$2,653,000 (at an annual appreciation rate of 5%), bearing an estate
gift tax of $1,326,500 at a 50% tax rate (and assuming Jim and Martha
have utilized their exemption). Instead, Jim & Martha do outlive
the trust term and the property goes to the children without any
estate tax.
* UDA 5/1/2004 means "under the date of" and refers to
the date that the QPRT is established.
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