Fresh Planning Opportunities for Qualified Personal Residence Trusts

Qualified personal residence trusts ("QPRT"s) have been an extremely useful estate planning tool for years.  But now in 2011 and 2012, it is a particularly good time for QPRTs.  Why?  Three reasons:
(1)  there is a new gift tax exemption available in the amount of $5M when it was previously only $1M.  This allows much more gifting to take place. 
(2)  there is a potential valuation discount available for an undivided interest in real estate as set forth in Ludwick, TCM 2010-104 which allowed a 17% discount for lack of marketability and lack of control.
(3)  the current depressed housing market has made QPRTs a very viable method because the lower the current value, the less the amount of gift tax exemption that needs to be used.

The new estate and gift exclusion amounts have just been released for 2012.

Unified estate and gift tax exclusion amount -   For gifts made and estates of decedents dying in 2012, the basic exclusion amount will be $5,120,000 (up from $5,000,000 for gifts made and estates of decedents dying in 2011).
Generation-skipping transfer (GST) tax exemption -  The exemption from GST tax will be $5,120,000 for transfers in 2012 (up from $5,000,000 for transfers in 2011).
Gift tax annual exclusion -  For gifts made in 2012, the gift tax annual exclusion will be $13,000 (same as for gifts made in 2011).

Obama Sets Forth His Deficit Reduction Plan Which Includes Estate and Gift Tax Changes

The Obama Administration has proposed a deficit reduction plan in which “[t]he Administration . . . supports the return of the estate tax exemption and rates to 2009 levels.”  This means that the estate tax applicable exclusion amount would go to $3.5 million (down from $5 million currently) and the gift tax exemption to $1 million, (down from $5 million currently) and the top marginal rates would be 45 percent (up from 35% currently).  Portability of a deceased spouse's unused estate tax applicable exclusion amount would remain under the President's proposal.