U.S. Tax Court Rules in Favor of QPRT Settlor

Decedent executed a 3-year QPRT in 2000 to keep the value of her residence out of her gross estate. The QPRT terminated in 2003, and the decedent began to look into fair market rent values but died before paying any rent to the Property Trusts. The estate excluded the value of the residence in the calculation of the decedent’s gross estate and claimed a section 2053 deduction for debt of the fair market rent owed to the Property Trusts. Respondent Commissioner included the $6.1 million residence in decedent’s gross estate and denied the deductions.

In Estate of Sylvia Riese et al. v. Commissioner, the Tax Court held that even though the QPRT had terminated and the decedent had not paid rent for six months before suddenly dying, there was sufficient evidence of an intent to determine the fair market value of the property and to pay rent. In addition, the Tax Court ruled that rent does not have to be paid using a particular method, so an annual rent payment was reasonable.

Special thanks to Jim Hillhouse (WealthCounsel) for a summary of this case.