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:
- Parties — Grantor, initial trustee, and all remainder beneficiaries (full legal name, address, DOB, relationship, SSN/TIN, percentage share)
- 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)
- Valuation — Qualified appraisal of FMV as of anticipated transfer date
- Planning parameters — Grantor's age, health/longevity factors, desired retained term (years), applicable IRC §7520 rate (transfer month or either of two preceding months)
- Existing estate plan — Prior gifts, lifetime exemption usage, will/revocable trust, GST exemption allocation history
- 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
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
1---2name: qprt3description: Drafts an IRC §2702-compliant Qualified Personal Residence Trust agreement with safe harbor provisions under Rev. Proc. 2003-42 and Treas. Reg. §25.2702-5(c). Generates trust instrument, signature/notarization blocks, property exhibit, beneficiary schedule, and post-execution checklist. Use when drafting a QPRT for estate planning clients transferring a personal or secondary residence with a retained occupancy term to reduce gift tax valuation.4---5
6# Qualified Personal Residence Trust (QPRT) Agreement
7
8Drafts 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).
9
10## Prerequisites
11
12Gather before drafting:
13
141. **Parties** — Grantor, initial trustee, and all remainder beneficiaries (full legal name, address, DOB, relationship, SSN/TIN, percentage share)
152. **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)
163. **Valuation** — Qualified appraisal of FMV as of anticipated transfer date
174. **Planning parameters** — Grantor's age, health/longevity factors, desired retained term (years), applicable IRC §7520 rate (transfer month or either of two preceding months)
185. **Existing estate plan** — Prior gifts, lifetime exemption usage, will/revocable trust, GST exemption allocation history
196. **Governing law** — State of situs; note if grantor domicile differs
20
21## Trust Instrument Articles
22
23### Art. I — Preamble & Definitions
24
25- Identify grantor, trustee, execution date, governing law state
26- Declare trust irrevocable; recite QPRT intent under Treas. Reg. §25.2702-5(c)
27- Define: Residence, Retained Interest Term, Term Expiration Date, Remainder Beneficiaries, §7520 Rate, Qualified Personal Residence
28
29### Art. II — Trust Property & Permitted Holdings
30
31| Item | Requirement |
32|---|---|
33| Exhibit A | Verbatim legal description; all easements and appurtenances |
34| Cash holdings | ≤ 6 months' operating expenses + improvement/replacement reserve (Treas. Reg. §25.2702-5(c)(5)(ii)) |
35| Sale of residence | Replacement purchase within 2 years; excess → grantor distribution or GRAT conversion |
36| Casualty/destruction | Insurance proceeds to repair/replace; if infeasible → reversion or GRAT conversion |
37
38### Art. III — Retained Interest Term & Grantor's Rights
39
40- Exact term (years), commencement date, calculated Term Expiration Date
41- Retained rights: exclusive rent-free occupancy, fixtures/furnishings use, right to exclude; personal and non-transferable
42- Grantor responsible for ordinary maintenance; trustee oversees property condition
43- 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))
44- **Death during term:** Full date-of-death FMV included in gross estate under IRC §2036(a); gift tax benefit eliminated
45
46### Art. IV — Post-Term Occupancy
47
48- No occupancy right post-term absent arm's-length lease at FMR
49- Rent paid in cash (check/ACH) under formal written lease
50- FMR failure → IRC §2036(a)(1) estate tax inclusion risk
51- If reduced-rent occupancy permitted, document that estate tax inclusion results
52
53### Art. V — Remainder Beneficiaries & Distribution
54
55- Each beneficiary: name, address, DOB, relationship, SSN/TIN, percentage (must total 100%)
56- Contingent remainder: deceased beneficiary's share → descendants per stirpes
57- Election: outright distribution vs. continuing trust (address occupancy, rent allocation, buy-sell, expense allocation)
58- Deadlock: trustee authority to order appraisal and compel sale within [X] days of term expiration
59
60### Art. VI — Trustee Powers & Limitations
61
62**Authorized:** maintain/repair/improve residence; pay taxes, assessments, insurance; hold cash within Treas. Reg. §25.2702-5(c)(5)(ii) limits; engage contractors
63
64**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)
65
66**Fiduciary duties:** loyalty, impartiality, duty to inform; annual written accounting
67
68### Art. VII — Trustee Succession & Removal
69
70- Successor trustee(s) on death, resignation, or incapacity (two-physician certification or guardian appointment)
71- Resignation: 60-day written notice; removal by majority beneficiary vote after term
72- Grantor's removal power during term: limited to replacement with independent trustee (avoid IRC §2036)
73
74### Art. VIII — Tax Status & Reporting
75
76| Item | Rule |
77|---|---|
78| Income tax | Grantor trust (IRC §§671–679); all items on grantor's 1040 |
79| Gift tax | Form 709 in transfer year; gift = FMV − actuarial retained interest (§7520 + Pub. 1457) |
80| GST | If skip persons among remaindermen, allocate on full FMV (not discounted gift) |
81| Death during term | Full FMV in gross estate (IRC §2036(a)); stepped-up basis |
82| Survival of term | Carryover basis = grantor's adjusted basis + gift tax on appreciation (IRC §1015) |
83
84### Art. IX — Termination Events
85
86| Event | Result |
87|---|---|
88| Grantor survives term | Deed transfer; final accounting; basis documentation |
89| Death during term | Beneficiaries notified; estate administration; inclusion applies |
90| Disqualifying event | Reversion to grantor OR GRAT conversion (Treas. Reg. §25.2702-3); include conversion mechanics |
91
92Trustee duties continue until all property distributed, returns filed, and administration complete.
93
94### Art. X — Administrative Provisions
95
96- **Governing law:** State of situs; disputes in designated jurisdiction courts
97- **Severability:** Reform to minimum extent; §2702 qualification controls interpretation
98- **Amendment:** No changes to beneficial interests; administrative amendments for QPRT qualification or scrivener's errors only
99- **Notices:** Written; personal delivery, certified mail (RRR), or overnight courier
100
101### Art. XI — Spendthrift & Creditor Protection
102
103- No voluntary/involuntary transfer, assignment, or encumbrance of beneficiary interests
104- Creditors cannot reach trust assets by attachment, garnishment, or execution
105- Grantor's retained interest may be reachable by grantor's creditors during term (jurisdiction-dependent)
106- Address exception creditors (child support, alimony, tax authorities) per state law
107
108### Art. XII — Execution & Exhibits
109
110**Signature blocks:** Grantor (acknowledges irrevocability and tax consequences), Trustee (accepts fiduciary duties), two disinterested witnesses, notarial acknowledgment (seal, commission expiration)
111
112**Exhibits:** (A) Verbatim legal description from deed; (B) Beneficiary schedule with identifying information and percentage interests
113
114## Post-Execution Checklist
115
116- [ ] Record deed from grantor individually to grantor as QPRT trustee (local recording requirements; transfer tax declaration/exemption)
117- [ ] File Form 709 by April 15 of following year; attach agreement and appraisal
118- [ ] Update property/casualty insurance to name trust as insured
119- [ ] Notify property tax authority of ownership change
120- [ ] Obtain liability insurance in trust name
121- [ ] Establish FMR lease protocol if post-term occupancy anticipated
122- [ ] Begin annual trustee accounting from transfer date
123
124## Critical Compliance Points
125
126- **§7520 rate:** Choose transfer month or either preceding month — higher rate = larger retained interest = smaller taxable gift
127- **Term length:** Must not exceed actuarial life expectancy; shorter terms reduce mortality risk but reduce savings
128- **Residence limit:** One principal + one secondary residence in QPRTs simultaneously (Treas. Reg. §25.2702-5(c)(2)(i))
129- **Grantor as trustee:** Permissible; use independent successor to avoid §2036 on removal
130- **Post-term rent:** Must be FMR, actually paid, documented — most common compliance failure
131- **GST allocation:** Based on full FMV, not discounted gift amount
132- **Basis tracking:** Maintain grantor's adjusted basis records throughout; critical for beneficiary's future sale
133- **[VERIFY]** Rev. Proc. 2003-42 safe harbor language — confirm no superseding IRS guidance
134- **Jurisdiction:** State-specific recording, transfer tax, and homestead rules vary; confirm before executing deed
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