What You Need to Know About Titling Rental Real Estate in Maryland
Titling rental property in Maryland requires careful consideration and awareness of the legal implications and strategies available to help protect your assets while successfully preserving your estate plans. At ClearPlan, we enlist our wide network of professional resources to team with you for complex financial decisions that arise, including real estate. Let’s take a comprehensive look at the key considerations related to titling of rental property in Maryland, with a focus on financial guidance and planning.
Understanding Legal Separation and Protection
One crucial aspect of estate planning for rental property in the state of Maryland is the elimination of any personal legal connections to your properties, a strategy that involves structuring ownership to shield your personal assets from the potential liabilities associated with your rental activities. States have varying laws regarding property ownership, taxes, and liability, making it essential to conduct thorough research. At ClearPlan, we strive to help safeguard your personal estate by providing you access to a network of specialized professionals, offering solid strategies when the time for critical decisions arise.
Utilizing LLCs for Liability Protection
Many property owners opt to form a legal entity known as a Limited Liability Company (LLC). Due to the structure of an LLC, titling rental properties under an LLC offers you a layer of protection, separating your personal assets from business liabilities. In Maryland, forming an LLC may help shield you from personal liabilities for debts or legal claims arising from the property, such as tenant disputes or accident claims related to the property. The LLC structure not only helps to safeguard your personal assets, but also provides flexibility with in managing and transferring ownership of rental properties.
Structuring Ownership for Asset Protection
Proper titling of rental properties plays a crucial role in helping to protect your assets from unforeseen legal issues, including divorce. Depending on your specific circumstances, different ownership structures, such as tenancy by the entirety, joint tenancy with rights of survivorship, or tenancy in common may be appropriate. Each structure has implications for estate planning, taxation, and asset distribution.
Owning and renting real estate entails inherent risks, from tenant disagreements to property damage or legal liabilities. To mitigate risks, it is advisable to work closely with a trusted real estate attorney for valuable guidance in key areas, such as legal protections and compliance with laws and regulations. A well-drafted lease agreement outlining tenant responsibilities, rent collection procedures, and terms for resolving disputes, helps to protect your financial interests and minimize legal exposure. Suffice it to say, these options underscore the importance of having access to trusted professional resources. Need a real estate attorney? We love connecting people.
Estate Planning Strategies:
For estate plans containing real estate holdings in the portfolio, the transfer of property after death is an important consideration. The choice between transfer on death (TOD) deeds, life estates, or the addition of beneficiaries to a deed involves weighing individual tax implications and asset distribution preferences. A TOD deed allows for the transfer of property to designated beneficiaries upon your death, often bypassing probate and potentially reducing estate taxes. Conversely, establishing a life estate deed grants you the right to use the property during your lifetime, with ownership passing to beneficiaries upon your death. Each method offers distinct advantages, and the choice depends on your goals for estate distribution and your individual tax considerations.
Many strategies and variables exist when crafting an estate plan that includes real estate holdings. According to Tara Frame, estate planning attorney, “In most cases, you would want the real estate to pass through a trust, to avoid probate, while still receiving the benefits of the step-up in cost basis for tax purposes. Although many people may consider adding a joint owner to a deed during their lifetime, this option is rarely advised. This avenue would eliminate the step-up in basis and may result in significant tax implications.” This guidance demonstrates the importance of relying on an experienced estate planning attorney to advise you of the best options for your situation. In addition to a trust, your estate attorney can help you evaluate additional options, such as a transfer on death (TOD) deed and a life estate deed.
Big Benefits of 1031 Exchanges
When planning to sell rental real estate, understanding the many tax implications is crucial. Selling a property outright may result in large capital gains taxes based on the appreciated value. Alternatively, a 1031 Exchange allows you to defer taxes by reinvesting sale proceeds into a similar property within a specified time. Beneficial for a variety of scenarios, the strategy of using a 1031 Exchange potentially helps you facilitate portfolio growth and preserve investment capital. It is critical to consult with a tax accountant and follow specific IRS rules and timelines to achieve the desired outcome. Consulting with a tax advisor or tax accountant helps in navigating these complex decisions to optimize tax benefits according to your financial goals and individual circumstances. We would be happy to speak with you and to refer you to one of our many trusted resources.
At ClearPlan, we stand ready to support you through the complex decisions affecting your portfolio. We help connect you with the trusted professionals, resources, and strategies needed to navigate the nuances of titling rental real estate in Maryland . Whether you are considering forming an LLC, exploring trust options, or planning for property disposition, our network of professionals in real estate law, taxation, and estate planning are ready to help. As a team alongside you, we collaborate and coordinate with our trusted circle, empowering you to make informed decisions and helping to protect your financial future. Does your financial advisor have a trusted team of professionals available to you? Reach out to us today and we’ll be glad to make the introduction.
ABOUT THE AUTHOR:
Troy Brewer has a talent for connecting successful people while serving as a respected mentor on the path to prosperity. By facilitating an all-encompassing approach to wealth management, Troy utilizes his extensive network of resources including estate planners, accountants, and business leaders to develop creative financial solutions for his clients. By fostering meaningful relationships, orchestrating financial strategies, and serving as a trusted confidant, Troy helps his clients achieve their desired life and legacy.
Troy has spent more than 25 years in the financial services industry, focusing on maintaining tight multigenerational relationships through a process-driven approach. As a Chartered Retirement Plans Specialist® and member of the Baltimore Estate Planning Council, Troy specializes in low-cost investments, complex / multigenerational wealth planning and tax efficiency. His clients include business owners, corporate executives, and affluent families. Learn more about Troy or schedule a consultation.
Opinions expressed in this article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and subject to change without notice. Investing involves risk and you may incur profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
The information is being provided for information purposes only and has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
Raymond James is not affiliated with the Baltimore Estate Planning Council.
