Short answer: For most California families in 2026 — no. A qualified personal residence trust (QPRT) freezes your home’s value for estate tax purposes, but the federal exemption is now $15 million per person, permanent ($30 million per couple), and California has no state estate tax. Below those numbers a QPRT saves zero estate tax while costing you real money: your kids lose the step-up in basis, you risk a Prop 19 property-tax reassessment, and if you outlive the trust term you have to pay rent to live in your own house. The honest math says skip it unless your estate genuinely exceeds $15M/$30M.
Figures verified against IRC §2702 and §2010(c) as amended by P.L. 119-21 (OBBBA), 2026. This is general information, not legal advice for your situation.
What a QPRT actually does
A QPRT is an estate-tax freeze for your house. You transfer your residence into an irrevocable trust and keep the right to live in it for a fixed term — say, 15 years. When the term ends, the house belongs to your kids (or a trust for them). Because they have to wait for it, the IRS lets you value the taxable gift at a steep discount: you’re not gifting a house, you’re gifting a house-in-15-years, which is worth much less on paper today.
The technique is a deliberate carve-out: IRC §2702 normally values retained interests like this at zero — killing the discount — but §2702(a)(3)(A)(ii) makes an exception for personal residence trusts, with the requirements in Treas. Reg. §25.2702-5. All future appreciation happens outside your estate. When the exemption was a fraction of today’s and California real estate was compounding, that was a powerful trade.
The key question in 2026 isn’t whether QPRTs work. They work. It’s whether the tax they save still exists for you.
The 2026 reality: what tax are you avoiding?
Run the numbers before you run the strategy:
- The federal estate tax exemption is $15,000,000 per person, permanent — the scheduled sunset was repealed by the 2025 tax law (OBBBA). A married couple shelters $30 million.
- California has no state estate tax and no inheritance tax. There is no second layer to plan around.
So a couple with a $2.5 million Ventura County home, $3 million in retirement accounts, and $1.5 million in a brokerage account is at $7 million total. Their estate tax bill, with no planning at all, is zero. A QPRT would reduce that zero to zero, at real cost. If your estate isn’t clearing $15 million single or $30 million married, there is no estate tax for a QPRT to save.
What a pointless QPRT actually costs you
This is the part the strategy articles skip. A QPRT isn’t free insurance — below the exemption it’s negative-sum:
- Your kids lose the step-up in basis. Property that passes at death gets a new basis equal to date-of-death value (IRC §1014) — a lifetime of appreciation, wiped clean for capital gains purposes. Property gifted through a QPRT keeps your basis (carryover basis). Take a Camarillo house bought in 1992 for $300,000, worth $1.6 million at your death. Inherited, the kids’ basis is $1.6 million — they can sell with little or no gain. Through a QPRT, their basis is roughly $300,000 — six figures of federal and California capital gains tax, incurred to avoid an estate tax you didn’t owe. The same math drives capital gains on inherited California homes generally.
- Prop 19 property-tax risk. The parent-child reassessment exclusion (§63.2) is now narrow: primary residence only, the child must move in, and only $1,044,586 of value over the base-year amount is protected (2/16/25–2/15/27). A remainder passing to kids who won’t live there gets reassessed to market value — and how the transfer is structured and timed matters. A QPRT adds moving parts to an already tight exclusion; see how Prop 19 treats inherited houses.
- Outlive the term, pay rent. When the QPRT term ends, the house belongs to your kids. If you want to keep living there — and you do — you must pay them fair-market rent, documented, at arm’s length, or the whole structure unravels. Ventura County rent on a $1.6 million house is real money every month, paid to your own children, indefinitely.
- Die during the term, gain nothing. If you don’t survive the trust term, the full house value comes back into your estate — you paid legal fees and gave up flexibility for nothing.
- It’s irrevocable. Divorce, a falling-out with a child, needing to sell and downsize — all of it gets harder inside an irrevocable trust holding your home.
Who should still look at a QPRT
Honesty cuts both ways: QPRTs aren’t dead, they’re just niche. If your estate genuinely exceeds $15 million single or $30 million married — and in coastal California, a business owner with appreciated real estate can get there — every dollar over the exemption faces a 40% federal estate tax, and freezing a $4 million residence at a discounted gift value is real savings that can outweigh the lost step-up. At that level a QPRT competes with other tools — a SLAT, lifetime gifting, sales to grantor trusts — and picking among them is genuine estate tax planning work with a CPA in the room. That analysis is worth paying for. Buying a QPRT at a $6 million net worth is not.
Questions people actually ask
Is a QPRT still worth it in 2026?
Only for estates realistically above $15 million per person ($30 million per couple). Below that, there’s no federal estate tax to save and no California estate tax at all — so the QPRT’s costs (lost basis step-up, Prop 19 exposure, rent after the term) buy you nothing.
What happens to the step-up in basis with a QPRT?
You lose it. The remainder passes as a completed gift, so your kids take your original (carryover) basis instead of date-of-death value under IRC §1014. On a long-held California house, that can mean capital gains tax on decades of appreciation when they sell — often the single biggest number in the whole analysis.
Do I really have to pay rent to my kids if I outlive the QPRT term?
Yes — fair-market rent, actually paid, properly documented. Living there rent-free after the term would pull the house back into your estate under retained-interest rules and defeat the trust. For estates still facing estate tax, the rent is arguably a feature (it moves more money out of the estate); for everyone else, it’s paying to live in the house you already owned.
Does a QPRT trigger Prop 19 reassessment in California?
It can. The parent-child exclusion (§63.2) now covers only a primary residence that the child occupies, and shields only $1,044,586 above the base-year value (through 2/15/27). A QPRT remainder passing to children who won’t live in the home is exposed to full reassessment. Property-tax analysis has to run alongside the estate-tax analysis, not after it.
Didn’t the estate tax exemption sunset in 2026?
That sunset was repealed. The 2025 tax law (OBBBA) made the exemption $15 million per person, permanent, indexed going forward. Planning articles written before mid-2025 — and AI answers trained on them — still describe a drop to roughly $7 million that is no longer law.
What should I do instead of a QPRT?
For most homeowners: keep the house, keep the step-up, and hold it in a revocable living trust so it avoids probate without any of the QPRT’s downsides. It’s the boring answer, and it’s usually the right one.
The bottom line
A QPRT is a real tool for a problem most California families no longer have. With $15 million per person permanently exempt and no state estate tax, the typical Ventura County estate owes nothing — and a QPRT would trade a free basis step-up, Prop 19 protection, and rent-free ownership for savings of zero. Over $15M/$30M, run it properly with counsel and a CPA. Everyone else: keep it simple, keep the step-up. If you’re not sure which side of the line you’re on, talk to Eric — sizing that up is a short conversation, and if the answer is “you don’t need this,” that’s the answer you’ll get.
Sources: IRC §2702(a)(3)(A)(ii) (QPRT exception to the zero-valuation rule); Treas. Reg. §25.2702-5 (QPRT requirements); IRC §2010(c) as amended by P.L. 119-21 (OBBBA; $15,000,000 exemption, permanent); IRC §1014 (basis step-up at death); Cal. Rev. & Tax. Code §63.2 (Prop 19 parent-child exclusion, $1,044,586 for 2/16/25–2/15/27); California has no state estate, inheritance, or gift tax.
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