Other Trusts
Qualified Personal Residence Trust
The Qualified Personal Residence Trust (QPRT) is designed to hold title to the client’s principal residence or vacation home, whereby the client gives the property away to his children, but retains the right to use the property for a specified length of time. The idea behind it is to maximize the amount of gifts the client can make while minimizing the amount of the Federal estate tax “exclusion amount” to be used. The value of the gift is significantly reduced by the value of the client’s retained interest.
Charitable Remainder Trust
This trust is a vehicle into which assets can be transferred whereby the client (and/or his spouse) will receive an interest for life, and ultimately the assets will pass to charity. Such a trust is often ideally used when the client has a low-yield asset (e.g., unproductive land or low-income stock) which he would like to sell without significant capital gains taxes. The charitable remainder trust (“CRT”) enables the client to
- take a charitable income tax deduction today,
- avoid a tax on the sale of the assets that he contributes to the trust, and
- guarantee himself an income of some stated percentage from the trust for as long as he is alive.
The “CRT” is also often used when a client is contemplating selling an asset with a very low cost basis, e.g., his closely held business.
The CRT is often used in conjunction with an irrevocable insurance trust. The client can use part of the ‘extra’ income (i.e., the additional income that can be generated by the trust assets because no capital gains tax is paid) to pay life insurance premiums on a new policy. That policy will have a face amount equal to the value of the asset given to the CRT. Thus, the client’s children will actually inherit more than they would if the assets going to charity went instead to them. The reason is that the insurance will replace the CRT asset, but if the insurance is owned by an irrevocable trust as discussed above, the proceeds can avoid all estate taxation.
Realty Trust
The realty trust is simply an agency vehicle, and not a true trust. A common purpose of it is to acquire title to real estate on behalf of the revocable trust(s). This avoids recording the revocable trust(s) at the registry of deeds, while still permitting real estate to be part of the revocable trust(s) and thereby avoid probate. Once title to the client’s real estate has been deeded into the trust, beneficial ownership can be easily changed at any time by the execution of a new schedule of beneficiaries, without the need for executing and recording a new deed.