Using Your House to Transfer Wealth

There is an estate planning technique that allows you to gift live there. A qualified personal residence trust (a/k/a a house trust) permits you to transfer your residence to the trust and retain the right to live there for a certain number of years rent-free, which substantially lowers the value of the gift compared to the full value of the house, as explained below. How long you retain the right to live there is up to you, and depends on several factors, including your health, your tax basis in the property and your desired tax result.

After your rent-free retained use period ends, the house trust can provide that the trustee will rent the house to you for fair market rent for as long as you desire, including for the rest of your life. Your rent payments are tax-free gifts to the trust and its beneficiaries, and the payments may not be income taxable to the trust, if structured appropriately.

When you transfer your house to the trust, you make a gift equal to the fair market value of the house less the value of your right to live rent-free there for the number of years you choose. The value of your retained right is determined by actuarial tables and interest rates published monthly by the IRS. The longer you keep the right to live in the house and the higher the interest rate, the lower the value of the gift subject to gift tax.

If you live beyond the number of years you specified, then the house can either stay in the trust for your children or be transferred outright to them. If you die before the specified period ends, the value of the house at the time of your death is included in the value of your estate for estate tax purposes. The trust can provide either that the house passes to the trust’s beneficiaries (even though included in your estate for estate tax purposes) or is transferred back into your estate/revocable trust so that you can change the beneficiaries.

If you think a qualified personal residence trust may be an advantageous estate planning tool for you, your estate planning lawyer can “run the numbers” so you can decide whether it’s right for you.

This article appeared in the September 2026 issue of Stroll Lloyd Harbor.