Qualified Personal
Residence Trust
The "House GRIT"
A House GRIT is an irrevocable
trust into which the grantor places a personally owned home while retaining an income right or the use of the property for
a fixed period of years.
The home, at the end of the specified
period of years, will pass to non-charitable beneficiaries, such as a child or grandchild of the grantor. Generally, the grantor
is making a gift of the future right to trust assets to the remaindermen (family members).
If the grantor survives the term
of years selected, so that the home is not included in his gross estate, significant estate tax as well as other transfer
cost reductions may be realized.
Requirements for a "House GRIT"
First, an irrevocable trust must
be established. The trust must provide that the grantor retains the right to enjoy trust income or possess trust property
for a specified number of years.
The longer the specified term
of the trust, the greater the value of the retained income interest, and therefore, the lower the taxable gift the grantor
is making to the ultimate remainder beneficiaries.
The "principal residence" of the
grantor and/or one "other residence" of the grantor are candidates for transfer to the trust.
Under the Internal Revenue Code
rental-use rules, if the grantor uses the residence for the greater of (1) 10% of the number of days during which the house
is rented at a fair rental, or (2) two weeks, and rents the property for the balance of the year, it will qualify.
One or more qualified appraisers
should value the property shortly before it is placed into trust.
If the grantor resides in the
home at the expiration of the trust term, a written lease should be entered into requiring the grantor to pay a fair market
rental to the remaindermen (family members). The IRS has taken the position that the home may not be transferred out of the
trust (as, for example, by sale to the grantor) during the term of the trust.
The trustee generally should be
someone other than the grantor or the grantor's spouse.