Timely Action Can Substantially Reduce Property Tax Increases On Expiration

Many clients with taxable estates undertake to reduce their estate tax exposure by using qualified personal residence trusts (“QPRTs” or “RITs”). QPRTs are trusts that offer an exception to normal estate and gift tax laws. They are used to remove the value of homes from a taxable estate in a favorable manner. Traditionally, the most common approach to their use would cause loss of Florida homestead status after a set term of years has passed. We have recently established a process that has been approved by the IRS, on behalf of several clients, that permits the successful use of QPRTs while also preserving homestead status after that set term expires. The result of this process is a client’s ability to maintain continued use of their home while removing its value from their taxable estate, and while qualifying the home for favorable Florida homestead status.

The law on which QPRTs are based was made statutory under the Revenue Reconciliation Act of 1990. QPRTs thus began to be created as far back as 1990, and their stated terms are maturing in more frequent numbers. With the value of a typical home placed in a QPRT having appreciated substantially from its creation date, the prospect of having a home’s earlier assessed value adjusted to current fair market value presents a risk of substantial property tax increase. This is because the traditional IRS sanctioned approach to maintaining continued use of a home after the QPRT term has expired involves renting the residence. Renting a home that was previously classified as homestead property violates Florida homestead rules, permitting the county property appraiser to readjust taxable value to current market value and to deny further homestead status. We have secured the first rulings of their kind on alternative methods that have been approved by the IRS and county property appraiser’s offices that preserve continuity of homestead status. We would be happy to discuss whether these alternatives are feasible in your circumstances, without cost or obligation.

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