By 2026, the gift and estate tax exemption could potentially decrease from $13.99 million to around $7 million. It is often said that the only certainties in life are death and taxes. In the case of estate tax, it is commonly referred to as a tax on one’s estate upon death. However, most individuals may not need to pay estate tax thanks to the generous $13.99 million gift and estate tax exemption in 2025. This means that only estates exceeding this amount would be subject to taxation. But this scenario might see significant changes looming ahead.
This high exemption was established by the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump in 2017. However, without Congressional action, the gift and estate tax exemption could revert back to pre-2017 levels of around $7 million. This could potentially bring many affluent families into the realm of estate tax liability, particularly those owning high-value residences in affluent areas.
However, there is a way to potentially mitigate this situation – through the use of a Qualified Personal Residence Trust (QPRT).
A QPRT is an irrevocable trust that allows you to transfer your personal residence into the trust while retaining the right to live in the property for a certain number of years within the trust. After this period, the property passes on to your heirs or beneficiaries.
When you establish a QPRT and transfer the house into the trust, the trust technically owns the property. This means that the value of your home and any appreciation it accrues are not considered part of your taxable estate. Additionally, it can help reduce the burden of gift tax when transferring the home to beneficiaries.
This is due to the fact that at the time of transferring the property into the trust, its value is offset by what is known as a “retained interest.” The retained interest is the value of the right for you to reside in the property for a certain number of years without charge. It is assessed based on the property value, your age, the duration you will continue to live in the property as per the terms of the trust, and the interest rate determined by the IRS under Section 7520 of the tax code.
To understand how a QPRT operates, let’s analyze it with some numbers. Suppose we consider a scenario with the following factors:
– Property value: $3 million
– Your age: 65
– Trust term: 20 years
– IRS Section 7520 rate: 5%
Using the calculator, the retained interest rate is calculated at 0.376889%, with a remainder value of $1,130,667. Therefore, subtracting this amount from the property value of $3 million results in approximately $1.87 million, which would be the amount subjected to gift tax. However, you wouldn’t have to pay gift tax on this as it falls below the gift and estate tax exemption.
Suppose after 20 years, the property appreciates to $5 million. You wouldn’t have to pay estate tax on this appreciation since the property was removed from your taxable estate when transferred into the trust. Essentially, you pass on a $5 million property while utilizing only around $1.87 million of the gift and estate tax exemption.
In the event of your passing before the trust term ends, the property would revert back to your taxable estate. This is why QPRT is often referred to as a “bet your life” strategy. Additionally, you might incur additional property taxes as transferring the property into a QPRT could potentially impact state and local property tax exemptions depending on your state’s laws. If the beneficiaries sell the property after the trust term ends, they may be taxed on the appreciated value of the property since its establishment. In our example, this would be $2 million ($5 million minus $3 million).
With the potential decrease in the gift and estate tax exemption from $13.99 million to around $7 million by 2026, more affluent families might be subject to estate taxes, particularly those owning high-value residences in affluent areas. However, by transferring property into a QPRT, you can remove it from your estate, continue to reside in it, and pass it on to your heirs.
The original article titled “Use This Trust Fund When Your Home Increases in Value” was published on the English edition of Epoch Times website. Epoch Times © 2025. The views expressed in the article are solely those of the author and are for general informational purposes only. Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or personal finance advice. Epoch Times does not guarantee the accuracy or timeliness of the article.