Q: I am a single person (70) and my adult grandson lives with me. How can I convey the house to him so he isn't taxed.
A: Ideally, you simply leave it to him in your will. When a person dies, their property is all valued as of the date of death, so that the heirs receive a stepped-up tax basis to that value. That wipes out all the capital gains tax that you would incur were you to sell the house before you die. What you do not want to do is add your grandson to the deed on the property before you die, because if you do that then your grandson would be stuck with your tax basis (the amount you paid for the house originally). There is no Maryland inheritance tax on lineal descendants of property. So long as your estate does not exceed $11.5 Million in value, there is no federal estate tax. If you anticipate the need for longterm nursing care paid for by Medicaid, or wish to plan for that eventuality so as to preserve your house so that it does not count against your eligibility, then you should consult an elder care lawyer. Regardless, you should consult a lawyer to review your estate plan to make sure everything goes to those you want to receive it and with the least tax and other problems. You should also have other planning documents in place, such as powers of attorney for financial and healthcare decisions, before your ability to make such decisions is impaired through age or disability.
A: There are several different taxes that can come into play when you transfer property, so it helps to know which you mean. Although some may recommend keeping title as-is and letting everything pass through probate, in my view the simplest and most cost-effective approach to easily transfer property at death is to do a life estate deed. This kind of deed keeps the original owner on title throughout their lifetime and names someone to automatically inherit on the original owner's death. Another way to transfer property and avoid probate is through a trust, though trusts tend to be more expensive to set up than a stand alone deed.
Transfer & Recordation Taxes apply to most real estate deed transfers. However, there is an exemption for a deed to a grandchild, so if you opted to do a deed now (such as a life estate deed), it would be exempt from transfer and recordation tax.
Federal and State Death taxes apply based on the total value of everything you own and give away either during your life or at your death. Very generally speaking if you give away property worth less than $5 million total it should not incur death taxes in this state. Federal death tax has a much higher exemption (over $11 million). For most situations these taxes do not apply. Note, however, that giving away property during your lifetime does require filing a gift tax return if the value is over $15,000 in any given year.
Capital Gains Tax applies when someone sells property at a profit. This tax can affect people who receive property as a gift because they only get the basis of the original owner. However, people who inherit property (whether through a will or through a trust or life estate deed) get a stepped up basis and shouldn't need to worry about capital gains for the period before they became owner.
Inheritance Tax applies based on the relationship of the person inheriting. Under current Maryland law grandchildren are exempt from tax.
Probate Fee (Maryland likes to call it a "fee" not a tax) only applies to the property passing through someone's probate estate, though it is a relatively modest fee. Property that goes through a trust or deed does not incur this fee.
While not an exhaustive list, I hope that this helps! I'm encouraged to hear questions that ask about planning in advance because a little bit of planning can avoid complications, delay and unnecessary cost down the road. You're encouraged to reach out to an estate planning attorney to discuss options relevant to your situation.
Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.
The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.
Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.