What is a Trust for Personal Residences (TPR) and how does it function?

Residences are oftentimes most valuable assets and thus a significant portion of a taxable estate. A Trust for Personal Residences, or TPR (pronounced “tee-per”), enables you to transfer ownership of your house or vacation home at a substantial discount, effectively immobilizing its value for estate tax purposes, while still allowing you to reside in it. Here’s how it operates: You transfer the title of your property to the TPR (typically for the benefit of your family members), while retaining the right to live in the residence for a specified period. If you live until the conclusion of the specified period, the property (as well as any appreciation in its value since the transfer) is passed on to your children or other beneficiaries without any additional estate or gift taxes. Following the specified period, you may continue to inhabit the residence but you must pay rent to your family or designated beneficiary in order to prevent the inclusion of the property in your estate. This could provide an additional advantage by further decreasing the value of your taxable estate, although the rental income does have income tax implications for your family. In the event of your death before the conclusion of the period, the entire value of the residence will be included in your estate for estate tax purposes; however, in most cases, you won’t be in a worse position than if you hadn’t established a TPR. An additional benefit of the TPR is that it also functions as a reliable means for protecting your assets from creditors, as technically, you no longer own the property once the trust is established.