PERSONAL RESIDENCE TRUST (PRT)
Back to GlossaryDefinition
An irrevocable trust to which a grantor may transfer a personal residence (one per trust, maximum two trusts) and retain the right to live there for a specified term of years, after which, if the grantor survives the term, the residence escapes tax in the grantor’s estate
Summary
A Personal Residence Trust (PRT) is an estate planning tool that allows someone to transfer ownership of their home to a trust while continuing to live in it for a set period. The homeowner (grantor) gives up ownership but retains the right to live there for a specified number of years. If they survive this period, the home passes to beneficiaries (typically children) without being subject to estate taxes. This strategy helps wealthy individuals reduce their taxable estate while maintaining their current living situation. The trust is irrevocable, meaning it cannot be changed once established, and each person can create up to two PRTs (one for each residence they own).
Usage Context
This term is crucial when studying advanced estate planning strategies, gift and estate taxation, and wealth transfer techniques for high-net-worth individuals. Understanding PRTs is essential for comprehensive estate planning and tax minimization strategies.
Common Confusions
- Thinking the grantor maintains ownership of the property throughout the trust term
- Confusing PRT with QPRT (Qualified Personal Residence Trust) - they are the same thing
- Believing the grantor can revoke or modify the trust after establishment
- Assuming the trust provides income tax benefits during the term
- Thinking multiple residences can be placed in a single trust
- Misunderstanding what happens if the grantor dies during the trust term
