Last updated: October 2026

Qualified Personal Residence Trust (QPRT) in 2026: Move Your Home Out of Your Estate at a Discount

A home is often the largest single asset a family owns, and it is usually the asset that grows the most between retirement and death. For estates that approach the federal exemption, that combination is a problem: every dollar of appreciation the house gains is a dollar exposed to a 40% estate tax.

A qualified personal residence trust, or QPRT, is a statutory exception to that math. Instead of giving the house away, you transfer it to an irrevocable trust while keeping the right to live there rent-free for a fixed term of years. Because your children do not receive the property until the term ends, the IRS values the gift as only the discounted remainder interest — often well below the home’s actual value. Survive the term, and the house plus all of its appreciation is permanently out of your taxable estate.

The strategy is powerful and unforgiving in equal measure. This guide covers how a QPRT works in 2026, the numbers that drive the discount, the requirements the trust must satisfy, and the risk that makes term selection the most important decision in the plan.

How a QPRT Works

Section 2702 of the Internal Revenue Code generally treats a retained interest in a family transfer as worth zero, which would make the entire property a taxable gift. QPRTs live inside an explicit statutory exception: when the trust holds a personal residence used by the term holder, the retained right to occupy the home is given real actuarial value. The gift is reduced to the remainder interest — the right to own the home after your term expires.

1. Create and fund the trust. You deed your primary residence (or one vacation home) into an irrevocable trust that names remainder beneficiaries, usually your children, and fixes your retained term.
2. File the gift tax return. The transfer is a completed gift of the remainder interest, reported on Form 709. Most families use lifetime exemption rather than paying tax.
3. Live there rent-free during the term. You continue to pay property taxes, insurance, and maintenance, exactly as before. For income tax purposes the trust is a grantor trust, so nothing changes on your return.
4. Survive the term. The home passes to your beneficiaries and is permanently outside your estate. If you want to keep living there, you pay fair market rent to the trust — and each rent check moves additional value to your heirs without counting as a gift.

Notice what did not happen: you never gave up the right to live in your home, you never recognized capital gain on the transfer, and you never paid gift tax out of pocket unless the discounted gift exceeded your remaining exemption.

The Numbers: How the Gift Discount Is Calculated

Three inputs drive the discount: the home’s fair market value, your age, and the Section 7520 interest rate, which is 120% of the federal mid-term rate and is published monthly. Early 2026 rates have hovered in the mid-4% range, which is favorable — a higher 7520 rate increases the value assigned to your retained occupancy right and shrinks the taxable gift.

Read the table carefully and the trade-off becomes obvious. Extending the term from 10 to 20 years cuts the taxable gift by roughly a third — but it also doubles the window in which you must survive to get any benefit at all.

The Mortality Risk That Defines the Strategy

If you die before your retained term ends, the full fair market value of the residence on the date of death is pulled back into your gross estate under section 2036, as though the trust had never been created. The estate tax savings disappear entirely. The gift tax exemption you used is restored, so the exemption is not permanently lost, but the planning result is.

Term selection is therefore a bet on longevity, and it should be made with actual numbers rather than optimism. A 55-year-old funding a 20-year term is taking very little risk. A 78-year-old funding a 20-year term is taking a great deal. Planners frequently split the difference by using shorter terms, or by having each spouse create a separate QPRT so that only one share is exposed if a spouse dies early.

Requirements the Trust Must Satisfy

The QPRT exception is narrow, and the regulations at 26 C.F.R. § 25.2702-5 read like a compliance checklist. The IRS publishes a sample trust document in Revenue Procedure 2003-42 that most drafters start from.

What happens if the house is sold during the term? The trust stops qualifying as a QPRT with respect to the proceeds no later than the earlier of two years after the sale, the end of your retained term, or the purchase of a replacement residence. If no replacement is bought, the trustee must either distribute the proceeds to you outright or convert the remaining trust assets into a qualified annuity interest for the balance of the term.

Married Couples and Two-Property Strategies

• Split ownership first. If you and your spouse own the home jointly, convert the title to a tenancy in common, then each spouse transfers their 50% interest into a separate QPRT. This is why our explainer on joint tenancy with right of survivorship is a useful companion read — changing the form of ownership is the first step.
• Each spouse can cover a different property. Because each QPRT may hold only one residence, a primary home and a vacation home require two trusts. One spouse can fund each, which doubles the sheltered appreciation.
• A single-spouse death is contained. If one spouse dies during the term, only that spouse’s fractional interest is pulled back into their estate. The surviving spouse’s QPRT keeps running.

QPRT vs. Other Ways to Deal With the House

Common QPRT Mistakes

1. Choosing a term longer than your life expectancy. The most common failure. A QPRT you do not survive produces no estate tax benefit at all.
2. Using a QPRT for rental property. Section 2702 limits the exception to personal residences; investment real estate does not qualify.
3. Letting cash accumulate in the trust. Excess cash beyond the six-month expense allowance can disqualify the trust entirely.
4. Assuming rent after the term is optional. If you keep living there, you must pay fair market rent. Paying nothing can be recast as a retained interest, which unwinds the estate tax benefit.
5. Skipping the appraiser. Undervaluing the residence undermines the reported gift and invites an audit adjustment.
6. Forgetting the mortgage. A mortgaged home can go into a QPRT, but mortgage payments during the term are treated as additional gifts to the remainder beneficiaries.

What to Do Before You Sign

• Get a defensible appraisal of the residence and a written actuarial calculation of the remainder interest using the current month’s §7520 rate.
• Model two or three term lengths and compare the gift discount against the probability of surviving each term.
• Confirm the home’s basis and how a QPRT interacts with the step-up in basis your heirs would otherwise receive at death — this is the most common hidden cost of the strategy.
• Coordinate the QPRT with your life insurance. If the estate is large enough to need a QPRT, it is large enough to need liquidity to pay transfer taxes; an irrevocable life insurance trust is how most families provide it, and our estate planning checklist covers the rest of the document set.
• Review the plan if you decide to sell the home, since the sale changes the trust’s qualified status and starts a two-year clock.

Frequently Asked Questions About QPRTs

Do I have to pay rent to live in my own home after the QPRT term ends?

Yes, if you stay. Once the term expires the home belongs to the remainder beneficiaries, and fair market rent is what keeps the arrangement arm’s-length. Each rent payment moves more value out of your estate without counting as a gift.

What happens if I die during the QPRT term?

The full date-of-death value of the residence is included in your gross estate under section 2036, and the estate tax benefit is lost. The exemption used for the gift is restored, so you do not permanently waste it — the window remains available for your estate plan.

Can I put a second home or vacation property in a QPRT?

Yes, but each QPRT may hold only one residence. A primary home and a vacation home require two separate trusts, and a married couple can each fund one.

Does a QPRT work if the home is mortgaged?

A mortgaged residence can be transferred into a QPRT, but continuing to pay the mortgage during the retained term is generally treated as an additional gift to the remaindermen. Many planners prefer to pay off or restructure the debt first.

Does the annual gift tax exclusion apply to a QPRT gift?

No. The remainder interest is a future interest, and future-interest gifts do not qualify for the $19,000 annual exclusion in 2026. The gift must be reported on Form 709 and consumes lifetime exemption.

Is a QPRT still useful with a $15 million exemption?

For most families, no — the exemption is large enough that simplification usually wins. A QPRT makes sense when a high-value residence is expected to appreciate substantially and the estate is at or above the exemption, especially in states with an estate tax of their own.

Related Resources

• 26 C.F.R. § 25.2702-5 — the regulation that defines a qualified personal residence trust.
• 26 U.S.C. § 2702 — special valuation rules for transfers in trust, including the residence exception.
• IRS Revenue Procedure 2003-42 — the sample QPRT trust document.
• IRS § 7520 interest rates — the monthly rate used to value the retained term.
• NAIC Consumer Resources — insurer solvency and consumer protections.

Keep Reading

• Life insurance and estate tax in 2026 — how to keep a death benefit from enlarging the taxable estate.
• Inheritance tax in 2026 — state-level taxes your heirs may owe.
• Grantor trusts explained — why QPRT income stays on your return during the term.

Get the Liquidity Side Right Too

A QPRT removes a home from your estate; it does not create the cash to pay what is left. Families that pair a residence strategy with permanent life insurance give their heirs the liquidity to settle an estate without selling the house at a discount. Compare free quotes from 50+ carriers to see what coverage costs for your age and health — then bring the numbers to your estate attorney.