Can Gifting Private Company Stock Reduce Estate Taxes Using the Lifetime Exemption?
For families with significant wealth tied to real estate, a residence can be both a legacy asset and a meaningful part of the taxable estate. A Qualified Personal Residence Trust (QPRT) can transfer future appreciation to beneficiaries while preserving the owner’s right to live in the home for a set period.
The tradeoff is important: the strategy generally achieves its intended estate tax result only if the grantor survives that period.
A QPRT is an irrevocable trust designed to transfer a personal residence to beneficiaries while allowing the owner, called the grantor, to continue living there for a fixed term. The grantor transfers the home to the trust but retains the right to use the residence during that period. When the term ends, the remaining interest passes to the named beneficiaries, often children or trusts for their benefit. If the grantor survives the term, the home’s value, including later appreciation, is generally outside the grantor’s taxable estate. Federal regulations set specific requirements for a trust to qualify, including restrictions on what assets it may hold. A QPRT can be especially useful in lifetime gift tax exemption when a valuable residence is expected to appreciate substantially. For 2026, the federal basic exclusion amount is $15 million per individual, making projected estate size an important part of the analysis before choosing a trust term.
If a person makes an outright gift of a home, the gift is generally the home’s full fair market value because the donor kept nothing. By contrast, with a QPRT, the donor transfers the home to a trust but retains the right to use it as a personal residence for a fixed term. Because that retained right has value, the taxable gift is only the value of what the remainder beneficiaries receive after subtracting the value of the retained term interest.
IRS valuation rules consider the trust term, the grantor’s age and the applicable Section 7520 rate, which is 5.2% for August 2026. With QPRT, the result can be a smaller taxable gift and less use of the lifetime gift tax exemption. Careful valuation, documentation and Gift Tax Returns remain important.
When the QPRT term expires, the grantor’s retained right to occupy the home ends and the residence passes to the beneficiaries under the trust terms. If the grantor wants to keep living there, the approach is to enter into a bona fide lease and pay fair market rent to the new owners. That rent is payment for continued use of the property, not another gift. It also creates an additional planning benefit because each rent payment moves cash out of the grantor’s estate and to the beneficiaries without using additional gift tax exemption. The lease should be commercially reasonable, documented and followed in practice, including rent payments and appropriate tax reporting.
The central risk is that the grantor must survive the QPRT term for the estate tax benefit to work. If the grantor dies during the retained term, the residence is generally included in the taxable estate, undoing the transfer-tax advantage. That makes term length a decision. A longer term can produce a larger valuation discount, but it also increases mortality risk. QPRTs therefore require care for older clients, clients with serious health concerns, or anyone considering a long term mainly to maximize the discount. They also deserve scrutiny when the estate may never be taxable, because complexity, reduced flexibility and income tax tradeoffs may outweigh the expected estate tax savings.
A QPRT is one component of a plan, not a stand-alone solution. It can work alongside lifetime gifting, irrevocable trusts, charitable strategies, liquidity planning and family governance. The strongest candidates often have a taxable or potentially taxable estate, a residence they expect to keep for years, appreciation potential and a desire for the property to remain in the family. In QPRT estate planning, term length, rent and beneficiary readiness should be coordinated with the rest of the estate structure. For a family with several homes, separate trusts may allow different terms for different properties. Effective Trust and Estate Tax Planning should also consider basis, property taxes, insurance, maintenance responsibilities and objectives.
For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Jonathan Swartz, partner in Bennett Thrasher’s Trusts & Estates Planning, or call us at 770.396.2200.
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