Finance: What is QPRT?

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Transcript

00:19

tax reasons Well people create Q parts so that they

00:22

can transfer their homes and usually in a tax advantaged

00:25

or low taxi kind of way to their kids Loved

00:28

ones Or you know members of the Justice League Well

00:31

the Golden Ticket in Q Bert is the notion of

00:33

discounted cash flow Are discounting future value to be a

00:37

lower number in its present value that is the value

00:40

of the home is determined by an SS or usually

00:43

not Zillow yet and note that the government has a

00:46

cap or a maximum dollar value that can be transferred

00:50

from one generation to the next without suffering Severe taxes

00:54

like that's around 12,000,000 bucks these days So it's in

00:56

the interest of those with assets to transfer to make

00:58

that value appear to be as low as possible It

01:01

should be conceivable that if the home is to be

01:03

transferred not today but in a decade or even to

01:06

well then that future value of that home could be

01:09

re construed as being worth a lot less than it's

01:11

worth today and the official legal transfer happens in a

01:15

decade or two So it's going to transfer using up

01:17

a lot less of that 12 ish $1,000,000 estate tax

01:21

minimum ceiling there before you really get taxed And this

01:24

all makes sense If you think about real estate in

01:26

the context of well normal commercial real estate like apartment

01:29

buildings in office buildings that is If someone gave you

01:32

an apartment building but told you that you couldn't collect

01:34

any rent from it for 18 years than that building

01:38

would carry a significant value Discount today compared to what

01:42

it would carry were given to the beneficiary this week

01:45

because you collect 18 years worth a rent before the

01:48

other guys begin collecting So going to Cooper the home

01:50

is that essentially given in parts Teo say the beloved

01:53

children of the owners and the value of the asset

01:56

being transferred gets the benefit of what is essentially present

01:59

value or discounted cash flow evaluations such that the government

02:03

allows for the home to retain a flat steady UN

02:06

inflated valuation while for tax purposes well the value of

02:09

the home is discounted Meaningful e In the future for

02:12

example the owners of the home might have a nice

02:14

little pad with a market value today of well $5,000,000

02:17

they're legally allowed to transfer up to 12,000,000 bucks to

02:20

their kids with no estate tax If they just transferred

02:23

the home today well they'd use up well 5/12 of

02:26

their total tax free estate transfer option But the parents

02:29

have other assets beyond the house They'd also like to

02:32

transfer with no estate tax write like stocks and bonds

02:35

and maybe some other real estate Well this is where

02:37

the Q part comes in Trying to mitigate much of

02:39

the $5,000,000 in assess value of the home by discounting

02:43

its transfer value a decade and change into the future

02:47

So let's say the transfer value was pegged at 15

02:49

years from now The discount rate of 5% per year

02:51

Compound ID Will the duration and years in the discount

02:54

rate er set by a government formula based largely on

02:57

what government bond paper is trading at in a given

03:00

time period and the age of the parents and other

03:02

expected structural life issues and life expectancy and a whole

03:06

bunch of other elements get a bald in that mush

03:08

pot of regulatory compiling So the government comes up with

03:11

a discount rate or a number so that $5,000,000 house

03:15

living inside of a queue pert with children still in

03:17

grammar school doesn't need to be traded To them is

03:20

an asset for say 15 2030 years Something like that

03:23

Big note You must be alive for the entire vesting

03:27

period of your Q Bert If you die well basically

03:30

then everything reverts back to a fully taxed state and

03:33

in some states hi California that fully tax status can

03:37

be painful right You don't get the estate waiver discount

03:39

minimum there So that home then well we're guessing here

03:42

is discounted at a rate of $5,000,000 divided by one

03:45

plus point No Five to the 15th Power right 15

03:48

years compounded If you do the math there that's roughly

03:50

two and change to 20.1 something like that meaning that

03:53

the transfer price of that $5,000,000 home to the children

03:57

then takes up well instead of 5/12 of the tax

04:00

free transfer It takes up something closer to 2/12 of

04:04

the tax free estate transfer rights only using up two

04:06

of the 12,000,000 Because the discounted or present value of

04:10

the home inside of Cuba it has gone from being

04:12

worth $5,000,000 current market value to being $5,000,000 divided by

04:16

roughly two and change or about two point 4,000,000 in

04:19

future assessed estate transfer value Yes that's the fancy phrasing

04:24

So yes there are costs in setting up a Q

04:26

Bert But usually the benefits of the kid's vastly outweigh

04:28

the 10 or 20 grand and change and setting one

04:30

of these puppies up especially if the dough is on

04:33

one of this kind of big multi $1,000,000 scale and

04:36

the ever big benefit Well you can actually live in

04:38

the home while you have in theory given it away

04:41

assuming you can you know still do stairs Anyway when

04:44

you are dealing with a homeowner who has that kind

04:46

of cash well there's always a chance he might be 00:04:48.862 --> [endTime] this guy Yeah oh