Mastering Tax-Efficient Real Estate Transfers: QPRTs and Irrevocable Trusts in the Post-OBBBA Era

The passage of the One Big Beautiful Bill Act (OBBBA) in 2025 has reshaped the landscape of estate planning, particularly for high-net-worth individuals seeking to transfer real estate to the next generation with minimal tax exposure. By permanently increasing the federal estate and gift tax exemption to $15 million per individual (and $30 million for married couples), the law has extended the window for strategic planning and reduced the urgency of pre-2026 estate tax sunsets. For those with significant real estate holdings, tools like Qualified Personal Residence Trusts (QPRTs) and irrevocable trusts have become even more potent in preserving wealth.

The QPRT: A Dual-Edged Sword for Real Estate and Tax Efficiency

A QPRT allows individuals to transfer their primary residence or vacation home into an irrevocable trust while retaining the right to live in the property for a specified term—typically 10–20 years. The key advantage lies in removing both the current value of the home and its future appreciation from the taxable estate. For example, a 60-year-old homeowner with a $5 million property who transfers it to a QPRT with a 15-year term could reduce their taxable estate by approximately $1.8 million, assuming a 4% Section 7520 interest rate. This remainder interest is reported as a gift, offsetting against the $15 million exemption threshold.

The OBBBA's permanent exemption increase amplifies the utility of QPRTs. Previously, the looming 2025 sunset created pressure to act quickly, but the new law provides stability, allowing individuals to structure QPRTs with longer terms or multiple iterations. For instance, a married couple could establish separate QPRTs for each spouse, layering protections against untimely death during the trust term.

However, QPRTs are not without risks. The “bet-the-life” nature of the strategy means the grantor must survive the trust term to fully realize tax benefits. If they predecease the term, the property reverts to the taxable estate. Additionally, beneficiaries inherit the home without a step-up in basis, potentially exposing them to capital gains taxes if they sell the property. These risks underscore the need for careful term selection and alignment with life expectancy projections.

Irrevocable Trusts: Beyond QPRTs

While QPRTs are tailored for real estate, broader irrevocable trusts—such as Grantor Retained Annuity Trusts (GRATs) or Intentionally Defective Grantor Trusts (IDGTs)—can complement real estate transfers. For example, pairing a QPRT with a GRAT allows individuals to transfer other appreciating assets (e.g., stocks or private equity) while retaining income streams. The OBBBA's higher exemption threshold makes such layered strategies more viable, as the increased exemption provides a larger buffer for estate tax planning.

Strategic Considerations in the Post-OBBBA Era

1. Timing and Term Optimization: With the exemption now indexed for inflation, individuals should evaluate whether to execute QPRTs in 2025 (at $13.99 million) or 2026 (at $15 million). A longer trust term may be more advantageous under the higher exemption, but must align with the grantor's health and life expectancy.
2. State-Level Implications: While the OBBBA addresses federal exemptions, states like New York and Massachusetts maintain lower estate tax thresholds. A QPRT that removes assets from federal taxation may still require additional planning to mitigate state-level liabilities.
3. Capital Gains Trade-Offs: The loss of a step-up in basis is a critical consideration. For properties expected to appreciate significantly, beneficiaries may prefer to hold the asset long-term to offset capital gains or explore alternative transfer methods.

Investment Advice for High-Net-Worth Families

The OBBBA's passage offers a unique opportunity to lock in favorable tax rates and exemptions. High-net-worth individuals should:
- Act Proactively: Use the expanded exemption to transfer real estate and other assets before potential future legislative shifts.
- Diversify Strategies: Combine QPRTs with GRATs, IDGTs, or insurance policies to create a multi-layered estate plan.
- Consult Professionals: Work with estate attorneys and tax advisors to model scenarios, including worst-case outcomes like preterm death or market downturns.

In a world where real estate values continue to climb—particularly in high-cost markets like San Francisco or New York City—QPRTs and irrevocable trusts are no longer just tools for tax avoidance but essential instruments for wealth preservation. The OBBBA's permanence provides a rare window of stability, but the window won't stay open forever. For those who act wisely, the rewards could be generational.