Residence trusts are used to transfer a grantor’s residence out of the grantor’s estate at a low gift tax

Gift tax

A gift tax is a tax imposed on the gratuitous transfer of ownership of property. The United States Internal Revenue Service says a gift is "Any transfer to an individual, either directly or indirectly, where full consideration is not received in return."When a taxable gift in the form of cash,...

 value. Once the trust

Trust law

In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

 is funded with the grantor’s residence, the residence and any future appreciation of the residence is excluded from grantor’s estate.

Personal residence trusts (“PRTs”) are irrevocable split interest trusts. The transfer of the residence to the trust constitutes a completed gift.