Q: Can a Qualified Personal Residence Trust or "QPRT" be used for a residential rental property? I do not live at this residence which has a value of about one million. I would like to protect this property from as much taxation as possible and give it to someone who is unrelated to me. --Margaret, Santa Barbara, CA
A: A Qualified Personal Residence Trust ("QPRT") cannot be used for a rental property. Under the QPRT rules, the residence must be occupied by the person creating the trust during the QPRT term. If you put the residence in the QPRT, you could occupy the house, but you cannot rent it out to a third party and retain the rental income.
If you want to shield this property from taxation, I would suggest speaking to an estate planning attorney as soon as possible. As you may know, there are opportunities for gifting in calendar year 2012 that will not be available in the future unless Congress changes the estate and gift tax law.
There are a variety of techniques that can be used to transfer assets out of your taxable estate, but each comes with restrictions on how much control you may retain and what rights you may retain with respect to the property. An experienced estate planning attorney can work with you to determine the best options based on your current needs and your future goals.