The BEST estate planning tool in California

There are a lot of great estate planning tools available to use. Clearly everybody should have a will, a financial “durable” power of attorney and a health care directive (or “living will”).  However, there are other options. Two that I particular like are the Qualified Personal Residence Trust (QPRT) and the Irrevocable Life Insurance Trust (ILIT). Today I am going to talk about my favorite… the QPRT!

A QPRT is an irrevocable trust. That means that generally it can not be changed. However, we can build some flexibility into it.

The fact that it is irrevocable is what gives it the power. It’s what makes it superior to the basic living trust for the right clients. Let me stress that a QPRT is not right for everybody but when it’s right it’s really right!

One of the main advantages of a QPRT is that it removes the future appreciation of a home from one’s taxable estate at a reduced value.  That is a million dollar house might be removed from your estate using only $600k of estate tax exemption. More importantly, the future appreciation is gone too!  Yes, future appreciation is OUT OF YOUR ESTATE. For our clients with estates that might be subject to estate tax after death this is huge.

Additionally as an irrevocable trust there is some protection from creditors. Some call this asset protection or liability protection. I hate to use that as a “selling point” but I do agree there is asset protection here and that’s important to consider.  Of course nobody should undertake asset protection if they know of a liability as that can be criminal. However, if you have no reason to know about a future liability or creditor then asset protection is a nice benefit of this trust.

Some people use QPRTs as a house management tool. Sort of like a partnership. They put a house into a QPRT, with a short QPRT period, and then the kids become the owners but in trust. This is like a partnership when set up right. It can NOT be used for income producing property but it can be used for a vacation property. We have many clients with vacation homes at Tahoe and Bodega Bay, for example, and QPRTs are excellent for those.

Lastly, QPRTs are simple and not that expensive to set up!

There are more benefits and advantages to a QPRT. Contact me to discuss how it may benefit YOU. -John

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