What Is a Qualified Personal Residence Trust (QPRT)?

A qualified personal residence trust (QPRT) is an irrevocable trust used to achieve estate and gift tax savings. The basic idea behind a QPRT is to transfer the equity in a qualified residence out of a person’s estate and to their heirs while reaping lower transfer tax consequences.

A QPRT can also be used to prevent creditors from accessing equity in the residence and allow for the gradual transition of assets to other family members, should these be among a person’s concerns. Assuming specific rules are met, a QPRT can be used for a primary residence or secondary residence, such as a vacation home.

How Do Qualified Personal Residence Trusts Work?

If, after consultation with an attorney, it appears a QPRT could benefit you, it works as follows:

• You transfer the title of a residence to an irrevocable trust and retain the right to use the residence and receive any income from it for a fixed period (known as the trust term).
• If you, as the trust grantor, pass away prior to the expiration of the trust term, it is common for the residence to revert back to you (in compliance with 26 U.S. Code § 2036). The residence will then be included in your estate and will be dealt with according to the terms of your estate plan. In addition, the value of the gift will be reduced due to the reversion.
• If you, as the trust grantor, are living when the trust term comes to an end, your interest in the trust will expire, and the residence passes to those that have been designated your beneficiaries. If the trust is constructed correctly, there should be no additional transfer tax on the appreciation of the value of the residence. In addition, the property in the QPRT will avoid any complications that may come with going through the probate process.

Special QPRT Rules

A QPRT must follow specific rules to comply with limitations imposed by the IRS:

• A grantor cannot have term interests in more than two QPRTs.
   
• Property transferred to the QPRT must be either:
  • The grantor’s principal residence,
  • A residence that is used for personal purposes for at least 14 days of the year, or, if more than 14 days, then for 10 percent of the number of days per year that it is rented, or
  • An undivided fractional interest in one of these types of residences.
• If a grantor pays any expenses of the property that arguably should be paid for by the beneficiaries, this payment may constitute an additional taxable gift. Language can be crafted to address this issue, but it must be done with care and attention to how it is written.
   
• If the property in the QPRT is no longer used as a qualifying residence, the QPRT must terminate, subject to certain exceptions.
   
• If a QPRT ceases to qualify as a QPRT, the trust assets must go to the trust grantor, or the QPRT must be converted into a Grantor Retained Annuity Trust (GRAT) within a fairly short timeframe, often as soon as 30 days.

It should be noted that the above rules are not exhaustive. There are many other rules and technicalities that are beyond the scope of this article.

Gift Tax Benefits of QPRTs

A QPRT has unique gift tax benefits. Once set up, the trust grantor is treated as having made an immediate gift to their beneficiaries. This means that the gift tax value is calculated as of the time of the transfer of the property into the QPRT.

However, this gift is discounted by the amount of the trust grantor’s retained interest in the residence. This is usually the value of the right to use or collect income from the property. The values and discounts are determined using actuarial tables published by the IRS.

Once the trust term ends, and assuming the grantor survives the term, the residence will pass on to the beneficiaries. They will not pay any further transfer tax above any tax that may become due on the discounted gift amount. If the residence has appreciated in value during the trust term, this appreciation will not be subject to transfer tax.

If the trust grantor passes away before the expiration of the trust term and there is a reversion clause, QPRT property will be brought back into the grantor’s estate. In this scenario, the grantor will not be in any worse position than they would have been had they not created the QPRT.

You May Be Able to Stay in Your Home Longer Than You Think

Many become nervous when they learn that they may only retain an interest in a personal residence subject to a QPRT for a certain amount of time.

However, one way to continue to have access to the property even after the term ends is to provide that the residence will stay in the trust and give the person’s spouse the right to live there rent-free until they pass. As long as the grantor remains married to their spouse, there is no reason why they cannot live there as well during this time.

Some Drawbacks

QPRTs are not a perfect solution for everyone. For example, it will not be possible to mortgage the property after it is put into the trust. In addition, it may be necessary to pay off any mortgage against the property prior to the transfer to avoid complications, such as a possible mortgage acceleration or other difficulties.

Setting up a QPRT can also be an expensive endeavor, as a good amount of time and effort by qualified professionals will be required to set it up correctly. This can include attorney’s fees, several appraisals, and title expenses.

Finally, a QPRT is irrevocable and may not allow someone to engage in other gift and estate tax planning. An analysis will have to be made to determine if a QPRT makes the best use of a person’s available gift and estate tax exclusions.

Consult With Your Attorney

This article only covers some of the rules that must be followed or technical considerations that should be considered when setting up a QPRT or determining if it is the right option for your situation. It is essential to consult with your estate planning attorney before creating a QPRT.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Deducting Long-Term Care Insurance Premiums in 2023

Are you a taxpayer who has purchased long-term care insurance (LTCI)? Take note of your policy details and your premium amount, as you may be able to deduct the cost – or at least part of it – from your 2023 income.

If your total eligible medical expenses (including your LTCI policy premium) for the year exceed 7.5 percent of your adjusted gross income, you may be able to take the amount of your LTCI policy premium as a deduction on your federal income tax return.

However, note that only certain LTCI policies qualify.

What Is Long-Term Care Insurance, and Do I Need It?

Long-term care insurance helps you cover costs for services you will likely need as you grow older, such as nursing home care or home health care.

According to LongTermCare.gov, U.S. seniors aged 65 today face a nearly 70 percent chance of requiring some form of long-term care later in life. In fact, almost a fifth of them will need it for more than five years.

Policies for this type of insurance can vary dramatically. Most will provide you with between $2,000 and $10,000 in funds each month, with premiums costing up to $5,000 a year. The younger you are when you purchase LTCI, the less pricey your annual premiums will generally be.

Keep in mind, too, that the average prices for long-term care have skyrocketed over time. For example, a private room in a nursing home will currently cost you more than $9,000 a month on average.

Unless you have very significant wealth, paying for LTCI may be well worth the cost, given how quickly long-term care can drain your retirement savings.

Can I Deduct My Long-Term Care Insurance Premium?

As mentioned above, only certain LTCI policies are tax-deductible. If your LTCI policy is considered “qualified” for tax deductibility, your total eligible medical expenses (including your LTCI policy premium) for the year also need to exceed 7.5 percent of your adjusted gross income in order you to be able to deduct your premium.

In addition, you are limited in how large a premium you can deduct. Read more about these caveats below:

1. Tax-Qualified Policies – To qualify for tax deductibility, your LTCI policy is required to meet specific rules, as outlined by the National Association of Insurance Commissioners (NAIC).

If you purchased your policy before January 1, 1997, it is likely qualified. (Double-check with your insurance broker or their state’s insurance commission.)

Policies purchased on or after January 1, 1997, have to meet a number of federal standards. Learn more about these standards on Page 9 of the NAIC’s Shopper’s Guide to Long-Term Care Insurance, available in PDF format.

2. Deduction Limits – The limit on your deduction depends on your age at year’s end. The IRS annually issues adjustments to these limits; it increased the 2023 tax-deductible limits by about 6 percent since 2022.

Note that if your annual premium amount for 2023 exceeds the limit provided in the table that follows, it will not be considered a medical expense:

Attained age before the close of the taxable year	Maximum deduction
Age 40 or under	$480 (up from $450)
Age 41 to 50	$890 (up from $850)
Age 51 to 60	$1,790 (up from $1,690)
Age 61 to 70	$4,770 (up from $4,510)
Age 71 and over	$5,960 (up from $5,640)

 

3. Other Caveats

• If you are self-employed, you can take the amount of the policy premium as a deduction if you made a net profit. Your medical expenses do not necessarily need to have exceeded 7.5 percent of your income.

• Most hybrid life insurance policies are typically ineligible for tax deductions.

• Note as well that benefits from per diem or indemnity policies, which pay a predetermined amount each day, are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $420 per day (for 2023), whichever is greater.

For further details on these and other inflation adjustments, access the complete PDF from the IRS website.

Additional Resources

To get an idea of how much long-term care may cost you, visit Genworth’s Cost of Care online tool to calculate the cost of care where you live.

Be sure to seek out information from your attorney when it comes to evaluating your long-term care insurance needs as well as protecting your loved ones’ assets in the event that you do require long-term care. 

Contact us

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Does Power of Attorney End at Death?

A power of attorney is a powerful planning document that enables you (the principal) to give another person (the agent or attorney-in-fact) the power to act for you while you are alive.

Because it is often prepared in the context of estate planning, many believe it gives their agents the power to continue acting after their death.

Although every state’s laws and forms vary, most power of attorney forms specify that the agency relationship created by a power of attorney ends upon a person’s death.

What Does a Power of Attorney Do?

A power of attorney (POA) can convey a significant range of power to the person you appoint. This includes the ability to do the following on your behalf:

• Enter into real estate transactions;

• Enter into leases and purchase personal property;

• Buy bonds or other securities;

• Engage in banking transactions;

• Engage in business operating transactions;

• Handle insurance transactions;

• Engage in estate transactions;

• Make decisions concerning any claims you have or in which you may be involved;

• Make gifts or charitable donations;

• Manage any benefits you receive or are entitled to;

• Manage the financial aspects of your health care;

• Manage your retirement accounts;

• Handle your tax matters;

• Delegate any of the above responsibilities to a third party

Power of Attorney Forms

Most POA forms allow you to choose how specific or broad you would like the powers you give to be so that you can tailor a power of attorney to suit your needs. An agent can also update a power of attorney over time as a principal’s needs change.

In many states, these powers, once delegated, remain in place even in the event of your incapacity. People frequently execute a power of attorney for this reason. They do not want to worry about what may happen should they become incapacitated or whether a loved one will have the ability to handle their affairs if they are no longer able to do so.

Power of Attorney After Death

That being said, a power of attorney expires upon your death. So, if you have entrusted a particular person with carrying out certain functions on your behalf while you were alive, those abilities cease when you pass away.

If you wish for the same person to continue handling your affairs after you die, you would need to specify they serve as the executor or personal representative of your will or trustee of your trust.

If you are concerned about maintaining continuity or making sure a particular person oversees your affairs upon your passing, be sure speak with an estate planning attorney. Every person’s situation and needs are different, and state laws also vary. Connect with your estate planner to help you understand your local laws and tailor an estate plan that meets your needs.

Contact us

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Who Can Override a Power of Attorney (POA)?

A power of attorney (POA) is a legal agreement that gives a person (agent) the ability to act on behalf of another person (principal). A common question asked about POAs is under what circumstances a person can override them.

POAs can be overridden. However, the “who” and “how” depends on whether the principal is of sound mind.

First and foremost, the principal can override a power of attorney at any time as long as they are of sound mind. The term “sound mind” refers to the state of mind and memory a person has at the time in question. So, as principal, you could override a POA if you have sufficient mental capacity to understand what you are doing.

What Is Revocation?

The act of overriding a POA is called revocation. Every state’s laws specify how revocation can occur, but typically, it is required to be in writing and must clearly express the principal’s intention to revoke a specific POA.

As the principal, you can revoke a power of attorney in many different ways, such as:

• Executing a new power of attorney, which states that you are revoking a prior POA

• Putting provisions in a POA that state it will terminate or become ineffective under certain circumstances, such as your incapacity

• Sending a written notice of the revocation to the agent and any monitor, secondary agent, successor agent, and any other relevant parties

• A POA can also naturally terminate upon the conclusion of a specific event, such as in a situation where the principal had entered into a POA solely to close a particular real estate transaction.

Overriding a POA Through the Court

A second way a POA can be overridden is through court intervention. For example, if you, as an agent, are no longer of sound mind, a court can remove you for acting improperly or acting in a manner that abuses your responsibilities as set forth in the POA.

If family members or friends are concerned about this situation, they can seek to have you removed as well. They would have to file a formal request with the applicable court to remove an agent and replace them with a new one. This request is made pursuant to the applicable state’s law governing powers of attorney.

A third option is when a concerned party seeks guardianship or conservatorship of the principal through the local court system. If a guardian or conservator is subsequently appointed, they can then request the termination of a particular agent’s authority.

Can Your Agent Refuse to Fulfill Their Duties?

An agent can in fact decline to fulfill their duties. When choosing an agent under a power of attorney, it is best to have discussed the responsibilities with of the role before appointing them so that you can do your best to avoid such a situation.

Even if your agent had agreed to act in this role, they can still resign after they have been appointed. This is one reason it may be a good idea to consider naming a successor agent.

Connect With the Experts

If you have questions about revoking a power of attorney or creating a new POA that overrides a prior one, it is best to speak with your estate planning attorney. Each state’s laws are quite specific regarding the power of attorney process, so you need to be sure you understand how to comply with applicable requirements.

Contact us

Elise Lampert, Esq.

Law Office of Elise Lampert 

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Appointing an Executor? Here's What an Executor Cannot Do

The person you name as your executor will be accountable for a number of important tasks, even in managing the administration of a small estate. This may include filing tax returns, keeping meticulous records, and distributing assets to your beneficiaries.

At the same time, there are rules about what the person in this role is not permitted to do.

What Is an Executor?

An executor is a person you choose to administer your estate upon your death. When you have passed away, the executor, assuming they agree to take on this role and can do so, presents your will to the court. The executor then asks the court to confirm their appointment.

Each state has rules regarding who may or may not serve in this role. Basic rules usually include that the executor must be of the age of majority (in most states, age 18) and of sound mind. In some states, the executor must not have a felony conviction. There can also be other state-specific rules to qualify as an executor.

Assuming these rules are met, the executor may then begin to manage the estate affairs. The goal is to wrap up the estate in an orderly manner. Their responsibilities may include:

• identifying what assets and property comprise an estate

• determining what debts may need to be addressed

• honoring the wishes expressed by the decedent in their will (to the extent possible)

• filing any estate tax returns that may be needed

• and much more.

Appoint a Capable and Responsible Person

Serving as an executor is a serious undertaking. If you are preparing a will, it is important to choose someone you know you can trust, who is reliable, and who will take their role seriously. It is also essential they are capable, so their financial sophistication and ability to understand complex issues matter.

As part of this decision-making process, you may consider the things they would be prohibited from doing as well.

What an Executor Cannot (And Should Not) Do

In general, an executor may not engage in bad acts or abuse their role. So, for example, they cannot refuse to probate a will if they agree to take on this responsibility. They also cannot steal from the estate or mishandle estate property.

An executor cannot take money from bank accounts and use them for personal needs, transfer property for less than market value, pocket money they are collecting from rental properties that are part of an estate, and much more. Absent unusual circumstances, this is considered stealing.

If they steal from an estate, a court can remove them from their position and deem them liable for the return of stolen funds. Those who abuse their role in such ways may find themselves being sued by beneficiaries and dealing with other legal worries.

However, in most states, executors are allowed to receive a “commission” or fee for their services. In New York, for example, an executor collects commissions based on the estate’s value. If the estate is worth $100,000 or less, they are entitled to 5 percent.

They may also be reimbursed for any reasonable and necessary expenses they need to take on in carrying out their role. They have to go about collecting these amounts appropriately, which usually requires some court oversight and approval.

In addition, there are some exceptions for use of estate property by an executor. In many situations, such as where a parent leaves a home to their child, that child is also serving as executor. A will typically provides that living in the house is permissible in such a situation. A will may also have additional language that permits certain “self-dealing” by an executor.

Executors are also expected to honor what is set forth in a will unless it is not feasible. So, they cannot arbitrarily refuse to carry out the wishes of the individual who had appointed them to the role, refuse to acknowledge beneficiaries, or refuse to wrap up an estate.

However, as with most things, there are exceptions. For example, suppose a will provides for something that is illegal, against public policy, or simply not possible (i.e., gifting of funds that do not exist). In that case, an executor understandably cannot carry out such provisions.

An executor cannot fail to maintain good records. In managing an estate for the benefit of others, they are supposed to keep records of all expenditures and transactions. They will also be expected to make this information reasonably available to beneficiaries, the court, and other parties with a vested interest in the estate.

Further Resources

There are many other examples of things an executor cannot do. Because every estate and will are unique, it is best to speak with your attorney. They can help alleviate any concerns you may have about what an executor may or may not be able to do.

Contact us

Elise Lampert, Esq.

Law Office of Elise Lampert

9595 Wilshire Blvd. | Suite 900 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com