With interest rates continuing to rise, qualified personal residence trusts (QPRTs) have become a useful estate planning tool that is especially effective in a high interest rate environment. A QPRT is an irrevocable trust that is designed to exclusively hold a primary or secondary residence for a set term. During the term, the creator of the trust (the settlor) retains the right to live in the residence, and after the expiration of the term, the residence automatically passes to a beneficiary (known as the remainder beneficiary). The remainder beneficiary may be an individual or individuals or a trust or trusts.

QPRTs are most appealing for individuals who have, or will have, a taxable estate for estate tax purposes at the time of their death. Currently, the federal estate tax exemption is $13.61 million per individual, but on Jan. 1, 2026, the federal estate tax exemption will automatically drop to approximately $5 million per individual, adjusted for inflation. Unless Congress acts, many individuals who would not otherwise be subject to the federal estate tax at their death will suddenly become subject to the federal estate tax in 2026.