The Obama administration has indicated its plans to block the estate tax from disappearing in 2010, though to offer a bit of relief, it might freeze it at the rate and exemption levels that took place this year. That would mean that estates worth up to $3.5 million for individuals and up to $7 million for couples would be exempt from any taxation and those above those amounts would be taxed at 45 percent.

Bearing these things in mind, high-net worth individuals should consider a Qualified Personal Residence Trust.

Even with the downturn in the real estate and stock markets, now is a good time for high net-worth individuals and couples to look at ways to shelter their estates from the possibility of taxes going forward. A QPRT is a trust that owns the home at a discounted value for a specific term while allowing the parents to continue living in the home.

The QPRT works best for those people who expect to live another decade or so. The longer the term of the trust, the greater the benefit to the children. But a word of caution: if one or both of the parents die before the trust expires, the heirs have to pay the estate tax on the value of the house at the time the parent died. Such a trust has to be set up carefully with a thorough review of actuarial tables and a discussion of each parent's financial history.

Technically, QPRTs make the most sense when interest rates are high because the higher the interest rate, the greater the discount applied to the property, which, in turn, increases the tax savings. A QPRT is based not on the current value of the house at the time the trust is being written but what is determined to be the present value of a future gift. This is actually a discount to the current value. When a home is put into the trust its value is not the current value of the house but, rather, what is called the "present value" of the future gift -- a decrease of 25-50 percent in value.

The Internal Revenue Service calculates these formulas so ask your expert how current calculations will affect the value of your estate.

Another potential benefit of the QPRT is that, if the parent runs into trouble with high hospital or medical bills, the hospital cannot demand any money gained by refinancing or selling the house because the occupant does not have any right to that money.

Finally, should the parent outlive the trust, the parent can continue to live in the house by paying the kids fair-market rent. What's more, if the kids want to avoid income taxes on the rent they'll receive from their parents they can form a grantor trust for the property so the rent is paid to the trust.

-- Reardon is owner & president of Brookfield-based Shakespeare Wealth Management Inc.

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