The gift and estate tax exemption could drop from $13.99 million to around $7 million in 2026.
They say the only things that are certain are death and taxes. But they can come at once in the form of the estate tax, often referred to as the death tax. However, most people won’t pay estate taxes. That’s mainly because of the large lifetime gift and estate tax exemption of $13.99 million for 2025. That means estate taxes are levied on the value of estates exceeding that amount. But that can change dramatically.
The large threshold was set by the Tax Cuts and Jobs Act (TCJA), made official by President Donald Trump in 2017. But without a move from Congress, the lifetime gift and estate tax exemption is set to go back to pre-2017 levels of about $7 million. This could push many affluent families into the estate tax zone—especially those with expensive homes that have increased in value and are in high-income areas.
But there’s a way around this. You could take advantage of a qualified personal residence trust (QPRT).
What Is a QPRT?
A qualified personal residence trust is a type of
irrevocable trust that allows you to transfer a personal residence to the trust, while retaining the right to live on the property for a certain number of years before it passes on to your heirs or beneficiaries.
When you establish the QPRT and transfer your home, the trust owns the property. This causes your home’s value and any appreciation to technically leave your taxable estate. But it can also reduce gift tax liability when transferred to your beneficiaries.
That’s because the value of your home at the time of transfer to the trust is reduced by something called your “retained interest” before it passes onto your heirs. The retained interest is the value of your right to live in the property rent-free for a certain number of years. It’s calculated using the home’s value, your age, the time you’ll keep living in the residence under trust terms, and the rate set by the IRS (Section 7520). The remainder interest is a percentage that’s deducted from the home’s fair market value. The result is subtracted from the home’s fair market value to get the remainder interest. That is the value for gift tax purposes.
How Does a QPRT Work?
To understand how a QPRT works, it helps to crunch some numbers. So let’s look at a scenario that takes into account the following factors:
- Home value: $3 million
- Your age: 65
- Trust term: 20 years
- IRS 7520 rate: 5 percent
Using this
calculator, the retained interest rate is 0.376889 percent, and the remainder value is $1,130,667. So that is subtracted from the home’s value of $3 million, to get about $1.87 million. This would be the amount subject to gift tax. But you wouldn’t owe a gift tax on it because the value falls below the lifetime gift and estate tax exemption.
And let’s say that after the 20-year term, the home appreciates to $5 million. You won’t owe any estate tax on it since transferring it to the trust in the first place removed it from your taxable estate. In other words, you passed on a $5 million property while using up only about $1.87 million of your lifetime gift and estate tax exemption.
Downsides to QPRTs
If you pass away before the trust term ends, the home will revert to your taxable estate. This is why a QPRT is known as a “bet to live” strategy. Plus, you may owe more in property taxes. That’s because, depending on your state of residence, transferring property to a QPRT could nullify any state and local property tax exemptions. And if the beneficiary sells the home after the trust term ends, the individual would pay taxes on any appreciation from the time when the trust was created. In our example, that’s $2 million ($5 million minus $3 million).
The Bottom Line
The gift and estate tax exemption could drop from $13.99 million to around $7 million in 2026. That could mean more affluent families would owe estate taxes, especially if they have expensive homes in high-income areas. But you could remove your home from your estate, live in it, and pass it on to your heirs by transferring the property to a QPRT.The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
