Which statement about qualified personal residence trusts (QPRTs) is NOT correct?

Which statement about qualified personal residence trusts (QPRTs) is NOT correct?

• A. The Chapter 14 valuation rules require the grantor to pay gift tax on the entire value of the residence at the time the trust is funded.
• B. The donor is not entitled to the annual exclusion for the gift of the remainder interest.
• C. The grantor will be subject to gift tax only on the present value of the remainder interest.
• D. The grantor retains the right to live in the residence during the trust term.

Answer: (C)

Qualified personal residence trusts let you transfer your home into a trust while keeping the right to live there for a set term. For gift tax purposes, the transfer is a gift of the remainder interest to the beneficiaries, because ownership passes to them only after the trust term ends. The amount of gift tax due is not the full value of the residence; it’s the present value of the remainder interest, reflecting the value the grantor cedes to the beneficiaries after the term, minus the value of the grantor’s retained occupancy. Chapter 14 valuation rules tell you how to calculate that present value, using the term length and a discount rate. The annual exclusion does not apply to this remainder gift because it’s a future interest. And the grantor does retain the right to live in the residence during the trust term. So stating that gift tax is due only on the present value of the remainder interest is correct.

Qualified personal residence trusts let you transfer your home into a trust while keeping the right to live there for a set term. For gift tax purposes, the transfer is a gift of the remainder interest to the beneficiaries, because ownership passes to them only after the trust term ends. The amount of gift tax due is not the full value of the residence; it’s the present value of the remainder interest, reflecting the value the grantor cedes to the beneficiaries after the term, minus the value of the grantor’s retained occupancy. Chapter 14 valuation rules tell you how to calculate that present value, using the term length and a discount rate. The annual exclusion does not apply to this remainder gift because it’s a future interest. And the grantor does retain the right to live in the residence during the trust term. So stating that gift tax is due only on the present value of the remainder interest is correct.