QPRT Explained: How to Move Your Home Out of Your Estate

A qualified personal residence trust, or QPRT, lets you give your home to your children today, keep living in it rent free for a set number of years, and report the gift to the IRS at a fraction of what the house is worth. Done at the right moment, it moves a multimillion dollar home and its future appreciation out of your taxable estate.

This article covers how a QPRT works, where the discount comes from, the two risks that decide whether it pays off, and the situations where I tell clients to leave the house alone.

How a QPRT works

A QPRT is an irrevocable trust that holds one thing, a home. You transfer the residence into the trust and keep the right to live there for a fixed term that you choose, such as 10 or 15 years. At the end of the term, the house belongs to the beneficiaries you named, usually your children or a trust for them.

The gift happens the day you fund the trust. Because you kept the right to live there for the whole term, the value of what you gave away is only the remainder, which is less than the full value of the house. You can use a QPRT for a maximum of 2 residences, typically your principal home and one vacation property.

How the QPRT discount is calculated

The size of the discount depends on the length of the term, your age, and the interest rate the IRS publishes every month, called the Section 7520 rate. A longer term means a bigger discount, and so does a higher rate. That means a QPRT gets better as interest rates rise, which is the opposite of most estate planning techniques.

Say you own a vacation home worth $4 million, you are in your early 60s, and you set up a 15 year QPRT. With the September 2026 rate of 5.4%, the remainder your children receive in 15 years is worth about 45% of the home’s value today, or roughly $1.8 million. That is the amount of lifetime exemption you use to move a $4 million house out of your estate.

Every dollar of appreciation after that happens outside your estate. If the home is worth $6 million at the end of the term, the extra $2 million passes to your children with no transfer tax cost.

What happens if you die before the QPRT term ends

The first risk is that you have to outlive the term. If you die before it ends, the entire house comes back into your taxable estate at its date of death value, and the tax benefit disappears. Your exemption comes back too, so you are no worse off than if you had done nothing, apart from the legal fees and appraisals.

The most common mistake I see is picking a long term because the discount looks better on the spreadsheet. I would pick the term you are confident you will outlive, then take whatever discount comes with it.

The QPRT basis problem: your children lose the step up

The second risk is the one that kills most QPRT proposals. When you die owning an asset, your heirs get a step up in basis, so the built up capital gain disappears. With a QPRT, your children take your original cost basis instead, adjusted for improvements.

Say you bought that vacation home for $600,000 and it is worth $4 million today. If your children inherit it at your death, they could sell the next day with no capital gains tax. If it passes through a QPRT and they sell, they are taxed on $3.4 million of gain. At 23.8% federal, that is about $809,000 before any state tax.

So the real question is whether the estate tax you save is larger than the capital gains tax you create. At 40% against roughly 24%, the QPRT usually wins, but only if your estate is actually taxable.

Paying rent to your children after the term ends

When the term ends, the house belongs to your children. If you want to keep living there, you have to pay them fair market rent under a real lease, supported by an appraisal. Skip that and the IRS can pull the whole property back into your estate.

I encourage clients to see that rent as another transfer, because every check moves money to your children outside the gift tax system. You do have to be comfortable writing that check to your own kids every month for a house you used to own, so find out how you feel about it before you start.

When a QPRT makes sense and when to skip it

A QPRT is worth a serious look when four things are true:

1. Your estate is above the federal exemption, which in 2026 is $15 million per person and $30 million for a married couple.
2. The home stays in the family and nobody is selling it.
3. You are healthy enough to outlive a reasonable term.
4. The 7520 rate is on the higher end, as it was in September 2026.

I would skip it when any of these is true:

• Your estate is below the exemption, in which case the step up in basis beats anything a QPRT can do.
• Your children intend to sell.
• The house is your largest asset and you may need to sell it or borrow against it.
• You will not want to pay rent later.
• Your health makes the term a coin flip.

A QPRT is also a poor vehicle for skipping a generation. If grandchildren are the goal, a different structure is usually the answer.

Common questions

Can I keep living in my house after putting it in a QPRT?

Yes, rent free for the term you chose. After the term ends the house belongs to your children, and you would need to pay them fair market rent to stay.

What happens if I die during the QPRT term?

The house comes back into your taxable estate and the tax benefit disappears. Your exemption comes back as well, so the loss is mostly legal fees, appraisals, and time.

Do my children get a step up in basis with a QPRT?

No. They take your original cost basis, adjusted for improvements, so a later sale can create a capital gains tax bill.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Here is a strategy that sounds like it should not be legal. You give your house to your children today. You keep living in it, rent free, for the next ten or fifteen years. And the IRS lets you report that gift at roughly half of what the house is actually worth.

That is a qualified personal residence trust, a QPRT. Done at the right moment, it moves a multimillion dollar home, and every dollar of its future appreciation, out of your taxable estate, using a fraction of your lifetime exemption.

Done at the wrong moment, it hands your children a capital gains problem, it hands you a rent bill you did not see coming, and if you die too early it accomplishes nothing at all.

In the next nine minutes I will show you where the discount comes from, the two risks that decide whether this pays off, and the situations where I tell clients to leave the house alone.

Who I am and what we will cover

Quick introduction. I am Andy VandenBerg, founder of VDB Wealth, a boutique registered investment adviser where I work with founders, executives, and private equity professionals whose net worth tends to sit in one or two places. I am a fiduciary, and planning around illiquid assets like real estate is a large part of what I do.

Here is the plan. The mechanics. Where the discount actually comes from, with real math. The mortality risk. The basis problem, which is the one most people miss. The rent conversation. And a checklist for when this works and when it does not.

How a QPRT actually works

A QPRT is an irrevocable trust that holds one thing, a home.

You transfer the residence into the trust and you keep the right to live there for a fixed number of years. You pick the number. Ten years, fifteen years, whatever fits. At the end of that term, the house belongs to whoever you named as the remainder beneficiaries, usually your children or a trust for them.

The gift happens the day you fund the trust, not at the end. And because you kept the right to live in the house for the whole term, the value of what you gave away is only the remainder, not the full house. That is the entire source of the discount.

Normally the code does not let you do this. Section twenty seven oh two says that when you give property to a family member and keep an interest for yourself, your retained interest is valued at zero, which would make the taxable gift the full value of the house. The qualified personal residence trust is one of the specific exceptions Congress carved out. Follow the rules, get the discount.

Two limits. You can use this for a maximum of two residences, typically your principal home and one vacation property. And the trust holds the residence plus a little cash for expenses, nothing else.

Where the discount comes from

Now the part that decides whether this is worth doing.

The size of the discount depends on three things. How long the term is, how old you are, and the interest rate the IRS tells you to use, called the section seventy five twenty rate. The IRS publishes that rate every month. Longer term, bigger discount. Higher seventy five twenty rate, bigger discount.

And here is the detail that surprises people. A QPRT gets better as interest rates rise. That is the opposite of most estate planning techniques.

Let me make it concrete. Say you own a vacation home worth four million dollars, you are in your early sixties, and you set up a fifteen year QPRT. In September of twenty twenty six the seventy five twenty rate is five point four percent. Strip the math to its core and the remainder your children receive in fifteen years is worth about forty five percent of the home’s value today. Call it one point eight million dollars. The mortality adjustment pushes the reported gift a little lower still.

So you moved a four million dollar house out of your estate and it cost you roughly one point eight million dollars of lifetime exemption instead of four million.

Then comes the real payoff. Every dollar that house appreciates from that day forward happens outside your estate. If the home is worth six million dollars at the end of the term, the extra two million passed to your children at no transfer tax cost at all.

Risk one, you have to outlive the term

Risk number one is the simplest. You have to outlive the term.

If you die before the term ends, the entire house comes back into your taxable estate at its date of death value under section twenty thirty six. The trust does not fail, but the tax benefit disappears completely.

The good news is that you are no worse off than if you had done nothing. The exemption comes back to your estate. What you lose is the legal fees, the appraisals, and the years spent inside a structure that gave you nothing.

Which leads to the most common mistake I see. People pick a long term because the discount looks better on the spreadsheet. A twenty year term at age seventy produces a beautiful number and a real chance you never get there. Pick the term you are confident you will outlive, then take whatever discount comes with it.

Risk two, the basis problem

Risk number two is the one that actually kills most QPRT proposals, and it is not mortality. It is basis.

When you die owning an asset, your heirs get a step up in basis. The house resets to fair market value at your death and the entire built up capital gain disappears. Put the house in a QPRT and that is gone. Your children take your original cost basis, carried over, adjusted for improvements.

Here is what that means in practice. Say you bought that vacation home for six hundred thousand dollars and it is worth four million today. If your children inherit it at your death, their basis is four million and they could sell the next day with no capital gains tax. If it passes through a QPRT and they sell, they are taxed on three point four million dollars of gain. At twenty three point eight percent federal, that is about eight hundred nine thousand dollars, before any state tax.

So the real question is never whether a QPRT saves estate tax. It is whether the estate tax you save is larger than the capital gains tax you create. Forty percent against roughly twenty four percent means the QPRT usually wins, but only if your estate is actually taxable. If it is not, you traded away a free step up for nothing.

The rent conversation

Now the part nobody warns you about.

When the term ends, the house belongs to your children. If you want to keep living there, you have to pay them fair market rent. Not a token amount. Real rent, in a real lease, supported by an appraisal. Skip that and the IRS can pull the whole property back into your estate under section twenty thirty six.

Here is the reframe I use with clients. That rent is not a penalty. It is another transfer. Every rent check moves money to your children outside the gift tax system, with no exemption used at all. If you were already planning to pass money down, rent is one of the cleanest ways to do it.

But you have to be genuinely comfortable writing that check to your own kids every month, in your seventies, for a house you used to own. Some clients love it. Some cannot stand the idea. Find out which one you are before you start, not after.

When a QPRT works and when it does not

So here is the whole thing as a checklist.

A QPRT is worth a serious look when four things are true. One, your estate is above the federal exemption, which in twenty twenty six is fifteen million dollars per person and thirty million for a married couple, with a forty percent rate above that. Two, the home stays in the family and nobody is selling it. Three, you are healthy enough to outlive a reasonable term. Four, the seventy five twenty rate is on the higher end, as it is now.

Skip it when any of these is true. Your estate is below the exemption, in which case the step up in basis beats anything a QPRT can do. Your children intend to sell, which turns carryover basis into a real tax bill. The house is your largest asset and you may need to sell it or borrow against it. You will not want to pay rent later. Or your health makes the term a coin flip.

One more. A QPRT is a poor vehicle for skipping a generation. Because of a rule called the estate tax inclusion period, you cannot effectively allocate generation skipping exemption to the trust up front. If grandchildren are the goal, a different structure is usually the answer.

Close and call to action

Here is the summary. A QPRT is a bet with three legs. You are betting the house appreciates, you are betting you outlive the term, and you are betting the estate tax you avoid is larger than the capital gains tax you create. When those three line up, it is one of the most efficient transfers in the entire estate planning toolkit. When they do not, it is an expensive way to complicate your life.

If you own a home that is a meaningful piece of your net worth and you are not sure which side of that line you fall on, reach out. I am happy to walk through it with you.

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