Inheriting a house in Maryland can sometimes be an unpleasant surprise. It depends on how you handle the legal, financial, and practical issues that can come with it. That’s why we created this guide to help you navigate the process of inheriting property in this state and make the best decision for your situation. You’ll discover:
- Pros and cons of inheriting a house
- Steps to take after inheriting property in Maryland
- Tax implications of inheriting a house and how to minimize them
- Options for selling, renting, or living in your inherited house
- Legal pitfalls to avoid when inheriting a house
This guide is for anyone who inherits a house in Maryland or plans to do so in the future. As professional Maryland property investors we have spoken to many sellers inheriting real estate that they weren’t sure what to do with.
Whether you want to cash out, keep it as an investment, or even move in and call it home, this guide will cover the basics of what can happen with inherited property in the state of Maryland.
Ready to learn more? Let’s get started.
Disclaimer: This blog post is intended for educational purposes only. As every real estate transaction is unique, Creo Home Buyers recommends you consult with a trusted advisor regarding your specific situation.
What Does it Mean to Inherit Real Estate in MD?
When someone dies, their property and possessions make up their estate. They can choose who gets what from their estate by making a will or trust. These people are called beneficiaries. But if they don’t have a will or trust, or if it’s incomplete, the court decides who gets what from the estate based on state laws. These people are called heirs. And if you are an heir who gets a house from the estate, you have inherited real estate in MD.
Personal vs Real Inherited Property: What’s the Difference?
Property can be either real or personal. Real property is land or real estate and anything on it, like buildings. Personal property is everything else, like money or cars.
And inheriting a house is different from inheriting other property because there are often more legal and financial issues that can be associated with this type of property.
For example, if you inherit money, you can just use it. But if you inherit a house, you have to deal with probate, taxes, mortgage, maintenance, insurance, etc. And you may also have to deal with other heirs who want the house or disagree with you.
So inheriting a house is not necessarily as simple as inheriting other types of property. That’s why it can be beneficial to have a general understanding of what happens when you inherit property in Maryland.
What Happens When You Inherit Property in Maryland?
If you inherit a house in Maryland that was only in the decedent’s name and it was not placed in a trust, you will most likely have to go through probate in order to transfer ownership of any real estate.
Probate is the legal process of settling a decedent’s estate. Below we briefly review the steps of probate but check out our article where we cover selling probate property in Maryland in more detail.
- The first step is to file a petition for probate and ask the court to open an estate and appoint a personal representative. The personal representative is responsible for managing the estate and distributing the assets.
- The next step is to file the will with the court, if there is one. The will specifies who gets what from the estate. If there is no will, the decedent died intestate and the state law determines who gets what.
- The third step is to identify and list the property, debts, and taxes of the estate. The personal representative is responsible for pay the debts and taxes and resolve any legal claims against the estate from estate funds.
- The final step is to distribute any remaining assets to the beneficiaries according to the will or Maryland state law. The beneficiaries are the people who inherit the property from the estate.
Maryland has a simplified probate process for small estates, which are valued at less than $30,000 (or $100,000 if the spouse is the only beneficiary). For small estates, you only need to file a document stating the value of the estate and its property and debts. You won’t need a personal representative or a court hearing.
Who is Considered an Heir in Maryland?
An heir is a person who gets property from a decedent who died without a will. The heirs are decided by the Maryland intestacy laws, which follow the blood or adoption lines of the decedent. For example, spouses and children are considered heirs, as are other family members.
If there is no heir distinction provided via a will, then the order of priority for heirs in MD is typically:
- Spouse
- Children and their descendants
- Parents
- Siblings and their descendants
- Paternal and maternal kindred
The property is divided among heirs based upon the will or on the family situation of the decedent at death.
What Happens if There is No Will?
If there is no will, the Maryland intestacy laws decide what happens to your property and your heirs. The laws follow your marital and family relationships in order to know how to divide your property among them.
Unfortunately, how the courts break up the estate may not match the wishes of the deceased or heirs. Not having a will can lead to problems for heirs, such as conflicts, taxes, and legal issues. These problems can cause significant delays when attempting to settle an estate.
What is the Difference Between Inheritance Tax and Estate Tax and How to Pay Them?
When you inherit a house in Maryland, you need to know the difference between inheritance tax and estate tax. These are two taxes that may apply to your inherited property.
Maryland Inheritance Tax
Inheritance tax is a 10% tax on the value of the property you receive from a decedent. The Register of Wills in the county where the decedent lived or owned property collects the tax.
You don’t have to pay the tax until the property is distributed from the estate. To pay inheritance tax, you need to file Form MET-1 with the Register of Wills along with a copy of your inheritance receipt or release form.
Some beneficiaries don’t have to pay inheritance tax based on their relationship with the decedent. These include but are not limited to the decedent’s spouse, children, parents, etc.
Maryland State Estate Tax
Estate tax is a tax on the value of the property transferred from a decedent’s estate. The Comptroller of Maryland administers and collects the tax. You have to pay the tax within nine months after the decedent’s date of death.
The estate tax rate is based on a credit that cannot exceed 16% of the amount by which the estate exceeds the exemption amount. To pay estate tax, you need to file Form MET-1 with the Comptroller of Maryland along with a copy of your federal estate tax return (Form 706) and other supporting documents.
What are the Financial Implications of Inheriting a House and How to Handle Them?
When you inherit a house in Maryland, you need to be aware of and prepared for some financial costs:
Mortgage payments
You have to decide whether to keep paying the mortgage or sell the house. The terms of the mortgage may affect your choice. You should talk to a lender or an attorney to find out your options.
Property taxes and homeowners insurance
These are costs that you have to pay every year. You should check how much they are and when they are due with the county and the insurance company.
Maintenance and repairs
You have to pay for keeping the house in good condition. This may include landscaping, painting, plumbing, roofing, etc. You should inspect the house and list any problems. You should also hire a home inspector to find any hidden issues.
HOA fees and rules
If the house is part of an HOA, you have to pay fees and follow rules. The fees cover the maintenance of the community. The rules may limit what you can do with your house. You should review the HOA documents and contact the HOA board or manager.
Utilities
You have to pay for water, electricity, gas, internet, etc. You should transfer the accounts to your name and monitor your bills. You should also look for ways to save energy and money.
What are the Options for Dealing with an Inherited House and How to Choose the Best One for You?
If you inherit a house in Maryland, you have three main options for dealing with it:
- Move in
- Rent it out
- Sell it
Each option has its pros and cons, depending on your personal and financial situation.
Here are some factors to consider when choosing the best option for you:
- Your emotional attachment to the house
- Your current living situation and preferences
- Your financial goals and needs
- The condition and value of the house
- The market demand and rental potential of the house
- The tax implications and legal requirements of each option
Option 1. Move in
Moving into an inherited Maryland house can be a great option for any number of reasons. However, this option can also have some drawbacks:
You may be forced to share the property or buy out other heirs, which can be costly and complicated. Moreover, you may have to pay ongoing costs and make updates or renovations, which can be expensive and time-consuming.
These are just some of the factors to consider before moving into an inherited house in Maryland. Make sure you understand the pros and cons before you make your move.
Option 2. Rent it out
Renting out your inherited house in MD can be a good option in some cases. You may want to rent it out if the house is in good condition, in a high-demand area, and can generate a positive cash flow. You may also want to rent it out if you are not sure what to do with the property yet.
However, renting out your inherited house can also have some drawbacks. You may have to share or pay off other heirs, pay income tax on the rental income, and deal with tenants and their issues. You may also have to follow landlord-tenant laws and regulations. You may also lose some tax benefits or exemptions if you sell the house later.
Option 3. Sell it
Selling your inherited house in MD can also be a good option. You may want to sell it if you don’t want or need the house, want to save on costs and taxes, or don’t feel like dealing with the hassle and responsibility of owning or renting it out. You may also want to sell it if you need some cash to pay off your own debts or invest in other opportunities.
However, selling a house that’s been inherited can come with drawbacks. You may have to split or pay off other heirs, pay capital gains tax on the sale, and make repairs or improvements. You’ll also be in need of a reliable buyer who can offer a fair price and close quickly.
How to Sell Inherited Property in Maryland
Step 1: Obtain a Copy of the Death Certificate and the Will or Trust
Selling an inherited property in Maryland requires some steps and documents. You need to prove that you have the legal right and authority to sell the property. The first step is to obtain a copy of the death certificate of the person who left you the property. This will show that they are no longer alive and that you are their heir or beneficiary. You also need to obtain a copy of their will or trust, if they had one. This will show how they wanted their property to be distributed.
Step 2: File a Petition for Probate with the Register of Wills
The next step is to file a petition for probate with the Register of Wills in the county where the property is located. Probate is the legal process of settling an estate. It involves appointing a personal representative, notifying the heirs and creditors, filing an inventory and information report, paying any debts, taxes, and expenses, and distributing the remaining assets.
Step 3: Obtain a Release of Lien Certificate, an Inheritance Tax Receipt, and a Certificate of Compliance
The third step is to obtain a release of lien certificate from the Comptroller of Maryland. This will show that all estate taxes have been paid or are not due. You also need to obtain an inheritance tax receipt from the Register of Wills. This will show that all inheritance taxes have been paid or are not due. And you need to obtain a certificate of compliance from the Department of Assessments and Taxation. This will show that all property taxes have been paid or are not due.
Step 4: Prepare a Deed and a Settlement Statement
The fourth step is to prepare a deed transferring the property from the estate to the buyer. You also need to prepare a settlement statement showing how the proceeds will be divided among the heirs and other parties.
Step 5: Schedule and Attend Closing
The final step is to schedule a closing date with the buyer and their title company or attorney. At closing, you will sign and deliver all the documents and keys to the buyer. And you will receive your check or wire transfer from the title company or attorney.
Tips for Selling Inherited Property in MD
Selling an inherited property in Maryland can be a complex and time-consuming process. Be prepared to encounter some challenges or delays along the way. You may also need to hire professionals such as an attorney, an accountant, a realtor, a home inspector, a contractor, etc.
Best Way to Sell an Inherited House in Maryland
Selling an inherited house in Maryland can be a good option if you need to distribute a decedent’s financial assets to heirs and creditors or if you need cash for other purposes. However, selling an inherited house can also have some drawbacks, such as dealing with probate, taxes, liens, repairs, and finding a reliable buyer.
That’s why you may want to consider selling to Creo Home Buyers in Maryland. Creo Home Buyers is a company that buys houses in any condition and situation. We can make you a fair, no-obligation cash offer quickly and close within 14 days.
Selling to Creo Home Buyers has many benefits. You won’t have to pay any agent fees, commissions, or typical closing costs. You also won’t have to make any repairs or improvements to the property before you sell. You can sell your inherited house in Maryland AS-IS and walk away from closing with a check in hand.
If you are interested in selling Maryland property FSBO to Creo Home Buyers, contact us today and get your free no-obligation purchase offer. You have nothing to lose (except maybe a few minutes of your time)!
FAQs Sellers Have About Inheriting Property in Maryland
Can You Sell Property That Passes Through Inheritance?
Yes, you can sell inherited property in Maryland after the probate process is completed (if required) and you have a clear title to the property. You have three main options for selling inherited property in Maryland: working with a Realtor, selling by owner, or selling to a cash buyer. Each option has its pros and cons, depending on your situation and goals.
What are Capital Gains Taxes?
Capital gains taxes are taxes on the profit from selling an inherited property. The profit is the sale price minus the value when you inherited it. You pay these taxes to the federal and state governments. The tax rates depend on your income and how long you owned the property. To lower or avoid these taxes in Maryland, you can sell the property within a year, use the primary residence exclusion, use the 1031 exchange, or donate the property.
Who is Responsible for Paying the Inheritance Tax and Estate Tax?
Inheritance tax is paid by the heirs who receive the property from the decedent, while estate tax is paid by the estate before distributing the property to the heirs. Inheritance tax applies only to certain situations. Otherwise, there are certain tax exemptions based on the relationship between the heir and the decedent. Estate tax is only paid by estates that exceed the Maryland estate tax exemption amount for the year of the decedent’s death.
What are the Maryland Intestacy Laws?
Intestacy laws are laws that decide who inherits property when someone dies without a will. In Maryland, the property goes to the closest relatives of the deceased, such as children, spouse, parents, or siblings. The amount each relative inherits depends on their relationship to the deceased and the presence of other relatives.
What happens if there are multiple heirs to the inherited property?
If there are multiple heirs to the inherited property, they have to agree on how to deal with it, or else the court may intervene and order a sale or a division of the property. The most common options for multiple heirs are:
- Dividing the property: The heirs split the property into equal or proportional shares. They may need a surveyor, an appraiser, and an attorney. They may also get lower value and higher taxes.
- Buying out each other’s shares: One or more heirs buy the other heirs’ shares. They may need a valuation and a negotiation. They may also need financing or cash.
- Selling the property and splitting the proceeds: The heirs sell the property to a third party and share the net proceeds. They may need a realtor, a title company, and an attorney. They may also pay capital gains taxes and other expenses.
What is required when assuming the mortgage on an inherited house?
Assuming the mortgage means taking over the existing loan on the inherited house. You need to check if the loan is assumable, contact the lender, submit an application, sign a new note, and record the new deed. Assuming a mortgage on an inherited property can save you money and taxes, but it can also require additional paperwork and expose you to risks and liabilities.
What are the legal implications of inheriting a property with an existing mortgage?
Inheriting a property with an existing mortgage means that you have to pay off the loan or face foreclosure. The lender can ask for full payment unless you assume or refinance the loan. The loan can affect your taxes, credit, and inheritance rights. You can deal with the loan by assuming, refinancing, selling, or negotiating with the lender.
What documents are needed to transfer ownership of an inherited house?
To transfer ownership of an inherited house in Maryland, you need documents to prove your identity, relationship, and authority. You need the death certificate, will or trust, probate court order or letters of administration, deed or title, affidavit of heirship or death (if applicable), and transfer tax return and payment (if applicable).