Final answer:
The correct answer is option c. The shorter the term of the trust, the greater the discount for gift tax purposes.
Step-by-step explanation:
A qualified personal residence trust (QPRT) is a specific type of irrevocable trust designed to transfer a primary or secondary residence to beneficiaries at a reduced tax cost. The main advantages of a QPRT are tax-related and pertain to estate planning.
- The grantor may continue to live in the residence during the term of the trust, thus enjoying the benefit of the property without giving it up immediately.
- If the grantor survives the term of the trust, the property does not revert back to the grantor - instead, it goes to the beneficiaries of the trust. However, in this case, no gift tax is due at the termination because the gift tax was applied at the time the trust was funded, calculated on a discounted value.
- The shorter the term of the trust, the greater the discount for gift tax purposes, which can be a significant advantage because it lowers the current gift tax cost.
Therefore, answer (c) - The shorter the term of the trust, the greater the discount for gift tax purposes - correctly describes one of the results of funding a qualified personal residence trust.