Part 3: Qualified Personal Residence Trusts (QPRTs)
By Robert L. Bolick, Esq.
This article is the third in a six-part series on simple and reasonable steps you can take to protect your assets. This issue focuses on how to protect your home. In upcoming issues you can learn how to protect your rental properties, cash values of life insurance, medical equipment and even accounts receivable.
With the flurry of lawsuits today, more and more physicians are looking for ways to protect their hard-earned assets. The following is a brief discussion of how to protect your home.
Won’t a homestead protect my home?
Not completely. Fortunately, Nevada has a very generous homestead exemption which protects up to $550,000 of equity in your primary residence. Unfortunately, a homestead will not:
(1) prevent a creditor from liening your home;
(2) prevent an eventual foreclosure; or
(3) provide any tax benefits.
If a judgment is entered against you, your home is automatically liened. A homestead merely prevents a creditor from foreclosing on your home as long as you have less than $550,000 of equity. Your creditor need not be in a hurry to do so. A creditor can renew the lien every six years, indefinitely. He can merely sit back and wait for property values to rise while you pay off the mortgage. Whenever he’s good and ready, he forecloses and you lose your home.
What is a Qualified Personal Residence Trust?
A QPRT is an irrevocable trust created specifically to protect your home. You are the trustee. You are the beneficiary. You maintain 100% control. You retain all of the tax benefits for home ownership, namely the interest deduction on your mortgage and your $250,000 per person capital gains exclusion. Your QPRT works for any future home you may purchase whether in Nevada or any other state. In other words, you don’t give up anything when you create your QPRT.
How can a QPRT help me?
Two main ways:
1. Continued Asset Protection. Unlike a homestead, no creditor of yours can lien your home in a QPRT. You are free to sell it whenever you like and proceeds cannot be attached. You can then purchase another home and hold it in your QPRT free from all liabilities.
2. Estate Tax Benefits. It is possible to have the title to your home pass to your children or other beneficiaries near the end of your life completely free of estate taxes. You have the right to continue to occupy your home throughout the remainder of your life. You will have removed a valuable asset from your taxable estate.
Final words to the wise: Don’t delay. The sooner you get your protection in place, the better. Life is too short to constantly worry that all of your years of schooling, training, scrimping, saving and hard work could all vanish overnight.
Robert L. Bolick is the senior partner in the law firm of Durham Jones & Pinegar in Las Vegas, where he has practiced for over 22 years. His primary areas of practice are asset protection and estate planning. Mr. Bolick has an “A/V” rating from Martindale-Hubbell, the highest professional rating for an attorney. He is listed in “Nevada Super Attorneys” (top 5% in his field). He was named Outstanding Estate Planning Attorney of the Year by the Nevada Business Journal. He has authored numerous articles and publications on asset protection and estate planning, and is a frequent lecturer on these topics. Mr. Bolick is a member of the State Bars of Nevada, California, Arizona, Utah and Hawaii.