One Simple Way To Prevent High Estate Taxes

For many families, real estate is one of their most valuable assets and a meaningful part of the legacy they hope to pass on. As property values continue to rise, estate planning becomes even more important. Many high-net-worth homeowners are looking for ways to preserve wealth, reduce potential estate taxes and make the transfer of property to future generations as smooth as possible. One strategy that may help is a specialized trust known as the Qualified Personal Residence Trust (QPRT).

What Is a QPRT?

A Qualified Personal Residence Trust is an estate planning strategy designed to help reduce potential gift and estate taxes when transferring a home to heirs or beneficiaries. In certain circumstances, a QPRT may significantly reduce the estate taxes associated with transferring a highly appreciated residence to future generations.

A QPRT is an irrevocable trust, meaning that once the property is transferred into the trust, the arrangement generally cannot be changed without significant legal and tax considerations. As a result, it is important to carefully evaluate whether this strategy aligns with your long-term financial and family goals before proceeding.

Estate taxes can become a concern when the value of an estate exceeds federal or Hawaii exemption thresholds. In 2026, the federal lifetime estate and gift tax exemption is $15 million per individual, or $30 million for married couples. Hawaii’s exemption remains significantly lower at $5.49 million per individual, which means some Hawaii residents may face estate taxes at the state level even if they are below the federal threshold.

Depending on the size of the estate, tax rates can reach up to 40% federally and 20% in Hawaii. A QPRT may help reduce the taxable value of a home passed on to future generations.

How Can a QPRT Work For You?

With a QPRT, you can transfer your property into the trust, while retaining the right to continue living in the home for a fixed period. When that term ends, the ownership passes to your designated beneficiaries.

One important consideration is that the homeowner must outlive the trust term for the strategy to achieve its intended estate tax benefits. If the homeowner passes away before the term expires, the residence may be included in the taxable estate, reducing or eliminating the anticipated tax advantages.

Depending on the structure of the trust, you may also continue living in the home after the term expires by renting it back, but you must pay fair market rent to the beneficiaries. In some cases, this arrangement may further reduce your taxable estate value.

Will You Incur Taxes at the Time of the Transfer?

Transferring a home into a QPRT is generally treated as a taxable gift for reporting purposes. However, the value of the gift may be reduced because you retain the right to live in the residence for a specified period, and many individuals use a portion of their lifetime gift and estate tax exemption to offset any current gift tax liability.

However, the value of that gift is reduced based on the length of time you choose to remain in the home. In general, the longer you remain, the lower the taxable value of the gift.

Depending on the planning structure of the QPRT and whether you have made any prior taxable gifts, you may not owe taxes at the time of the transfer. Your tax professional can work with you to make this determination.

Is a QPRT Flexible?

A QPRT can be designed to provide a degree of flexibility, but it's important to consider both your full financial picture and the needs of your beneficiaries. Your attorney, tax professional and advisor can help you evaluate whether a QPRT — or another advanced estate planning strategy — makes the most sense for your situation.

High-value real estate can play an important role in preserving and transferring wealth across generations, but it’s crucial to work with experienced advisors who understand estate and gift tax laws and ensure the options fit your family’s goals and long-term plans.

In General, Keep in Mind:

As property values grow, it’s worth thinking about how real estate may affect your broader estate plan and the taxes your heirs could eventually face.

One common challenge is liquidity. If a large portion of an estate is tied up in real estate, heirs may need access to cash to help cover estate taxes and other expenses. In some situations, life insurance can help provide immediate access to cash, and when used within a trust structure, can further reduce the estate tax liability.

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Planning ahead can help create more flexibility for how wealth is preserved and passed on to future generations. Advanced trust planning strategies, such as a QPRT, may help reduce estate tax exposure, but the right approach depends on your family, your goals and the assets you hope to protect.

For many Hawaii families, a primary residence or vacation property represents a substantial portion of overall wealth. Given the state's high real estate values and lower estate tax exemption threshold, proactive planning may help families preserve more of their wealth for future generations.

For thoughtful guidance around estate planning and the full scope of your financial life, reach out to your relationship manager at Bank of Hawaii The Private Bank.

The content in this article is for informational purposes only, and should not be construed as tax, legal or accounting advice by Bank of Hawaii and its affiliates. You should consult your own tax, legal and accounting advisors.