One of the steps in setting up an effective estate plan involves the review of your assets. This may include changing the way they are titled in order to avoid probate or to control the distribution to heirs. Often, the most valuable asset owned is real estate.
In order to change title to real estate, a deed is prepared and recorded among the Land Records in the county where the property is located. When a deed is recorded, recordation fees and transfer taxes must be considered. The cost to record a deed, which is charged by the Clerk of the Court, is $60.00. You may also pay for the service of a person to present the deed to the Clerk of the Court. In most counties in Maryland, it must be proved that real estate taxes, water bills and other outstanding charges to the county are current before a deed can be recorded.
When the deed is presented to the Clerk of the Court, the Clerk will determine if recordation or transfer taxes are due. If there is no consideration (payment) passing between the parties, there will be no recordation and transfer taxes due. An example of a “no consideration deed” is a deed of gift when the property does not have a mortgage on it. This would include a deed from a mother to her son with no money exchanging hands. Another example of a “no consideration deed” would be a deed transferring title to a revocable living trust.
If there is consideration for the deed, i.e. money exchanging hands, or the party is assuming a mortgage on the property, then transfer and recordation taxes may be due. However, there are instances when transfer and recordation taxes are exempt even if there is consideration between the parties. An example would be a deed from a mother to a son in which the son is assuming the mortgage on the property.
There are three taxes that are paid when a deed is transferred with consideration. The taxes are based on the amount of the consideration. The three taxes are:
- State transfer tax which is ½% of the consideration
- County transfer tax which varies from county to county
- County recordation tax which varies from county to county.
When advising a client in estate planning matters, I often address the need to change title to real estate by preparing and recording a new deed. In most cases, the deed will be exempt from transfer and recordation taxes.
An experienced estate planning attorney can help you determine which assets should be transferred and whether additional charges will be assessed to best achieve your estate planning goals.
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