"This is the eighth article of a series designed to provide guidance for those individuals who are considering making a large gift in 2012 to take advantage of the $5.12 million federal gift tax exemption that will expire at the end of the year. For prior articles, see below.
The Revenue Reconciliation Act of 1990 curtailed various types of estate planning transactions that had been very effective during the 1980s. While curtailing these other types of transactions, the 1990 Act created two primary types of transactions that could be used to reduce estate taxes. These were grantor retained annuity trusts (GRATs) and Qualified Personal Residence Trusts (QPRTs).
QPRTs are relatively painless and very effective at reducing the value of your estate that will be subject to estate taxes. We have created dozens of these trusts for second homes located in other states. However, in 22 years, we have set up less than 20 of these for Tennessee residences. The reason is that our clients would have had to pay Tennessee gift tax in order to put their Tennessee homes into QPRTs. The recent elimination of Tennessee gift taxes now makes QPRTs for Tennessee residences very viable. Since May, several of our clients have established QPRTs or plan to establish them during the next seven weeks to take advantage of their $5.12 million of gift tax exemption in 2012. We expect to help our clients to establish more Tennessee QPRTs during 2012 than we established in the prior 22 years. For clients who have sufficient other assets that are gifting candidates, a QPRT may not be the most effective gift.