Foreign Estate Fee On Maryland Property

ATTENTION ALL NON-MARYLAND RESIDENTS OWNING REAL PROPERTY IN MARYLAND:

If you are a non-Maryland resident who owns real property in Maryland, your Estate may be subject to a 1% Foreign Estate Fee that came into effect in 2022. If you own real property in Maryland in your name alone (not in Trust or other entity) and you are not a Maryland resident, at the time of your passing, your Personal Representative must make certain filings in Maryland as a “foreign personal representative” to have the authority to sell or distribute the Maryland property. The Foreign Personal Representative/Executor must report the asset, publish notice in the local paper, pay any inheritance tax owed if the property passes to a non-lineal heir or other non-exempt person, and must also now pay a fee of 1% of the gross value of the total real property in Maryland to the Maryland Register of Wills. This may amount to a significant and unexpected expense that could have been avoided through estate planning mechanisms during your lifetime.

For example, if Miriam owns property in Maryland in her name alone and dies as a Florida resident, her Personal Representative appointed in Florida must file a Foreign Estate proceeding in Maryland to have the authority to sign a Maryland deed to sell or transfer the real property to Miriam’s heirs. If Miriam’s Maryland real property is valued at $500,000 on the date of her passing with a $300,000 mortgage balance, the foreign personal representative must pay a fee of $5,000 to the Register of Wills in Maryland to open a Maryland Foreign Estate, in addition to the cost of publication of notice in the local paper and any inheritance tax owed. Without paying the 1% fee, the property cannot be transferred or sold. If Miriam owned more than one piece of real property in Maryland, in multiple counties, her personal representative must pay for publication of notice in each county, and her Estate would be subject to pay a 1% fee on the total value of all Maryland real property.

There are multiple ways to avoid the foreign personal representative requirements and paying this 1% Foreign Estate Fee at death for non-Maryland residents, if estate planning mechanisms are utilized during your lifetime. Solutions may include (1) transferring Maryland real property into a Revocable Trust; (2) creating an LLC to hold the real property; or (3) executing a Life Estate deed. Please note, however, that this would avoid the 1% Foreign Estate Fee and publication of notice, but inheritance tax must still be paid for distributions of assets to non-lineal heirs or other non-exempt individuals.

For more information about how best to avoid the 1% Foreign Estate Fee for your Maryland real property if you are presently a non-Maryland resident or contemplating moving outside of Maryland, please contact Bagley & Rhody.