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PERSONAL RESIDENCE TRUST (GRIT)

With a personal residence trust you transfer your home to an irrevocable trust for a period of years (usually 10-15 years). You retain the right to live in and use the home for that term of years. After that time the home belongs to your children. In effect, you are giving your home to your children today, but they will not own it until the end of the trust. Because your children will not actually receive the home until sometime in the future, the value of the gift is reduced or discounted. This uses less of your applicable exclusion amount than if you had kept your home together with its future appreciation, in your estate.

If you live longer than the term of the trust, you may have to pay rent and upkeep on the use of the home. Your residence will not receive a “stepped-up” basis when you die. Its basis will be your basis at the time of the gift. So it is necessary to compare the difference between the expected income verses estate taxes.

If you should die before the term of the trust is up, the residence will just be included in your personal estate for estate tax purposes. The personal residence trust is also sometimes referred to as a Grantor Retained Income Trust, or GRIT.