How to Structure Property Ownership Across State Lines
Real Estate Maryland
How to Structure Property Ownership Across State Lines
What property owners should consider when owning real estate in more than one state.
Owning property in another state can be an exciting step. Maybe you found a promising rental market, purchased a vacation home, or are building a real estate portfolio beyond Maryland.
But owning property across state lines also adds another layer of planning.
Property laws, taxes, business-registration requirements, landlord-tenant rules, and probate procedures can differ from state to state. The way you hold title can affect your liability, taxes, estate plan, and what happens to the property after your death.
There is no single ownership structure that works for every property. The right choice depends on where the property is located, how you use it, who owns it with you, and your long-term goals.
Why Does the Ownership Structure Matter?
A deed does more than identify who owns a property.
WHETHER YOU OWN REAL ESTATE INDIVIDUALLY, JOINTLY, THROUGH AN LLC, OR THROUGH A TRUST CAN AFFECT:
- Your exposure to property-related liability
- How the property is managed
- State and federal tax obligations
- What happens if another owner dies
- Whether probate may be required
- How the property fits into your estate plan
- The cost and complexity of maintaining your ownership structure
These questions become especially important when properties are located in different states because real estate is generally governed by the law of the state where the property is located.
Individual or Joint Ownership
The simplest option is often owning property in your own name or jointly with another person.
This may make sense for a personal residence or vacation property, depending on your circumstances.
But simplicity comes with trade-offs.
For investment or rental property, individual ownership may leave you personally exposed to certain property-related claims.
Joint ownership also requires careful planning because the way title is written can affect what happens when one owner dies.
BEFORE CHOOSING JOINT OWNERSHIP, CONSIDER:
- Who should have control over the property?
- What happens if one owner dies?
- Can an owner's interest be transferred?
- How does the ownership arrangement fit into each owner's estate plan?
The answers can vary by state and by the form of joint ownership used.
Owning Property Through an LLC
For rental and investment properties, an LLC may help separate property-related business liabilities from an owner’s personal assets when the entity is properly formed, maintained, and used.
AN LLC CAN ALSO MAKE IT EASIER TO ESTABLISH RULES FOR:
- Management
- Multiple owners
- Voting rights
- Distributions
- Adding or removing members
- Succession after an owner’s death
Do You Need an LLC in Every State?
Not necessarily.
An LLC formed in one state can sometimes own property in another. However, depending on the activities conducted there, the LLC may need to register as a foreign LLC in the state where the property is located.
For example, Maryland law generally requires a foreign LLC to register before doing business in Maryland.
Maryland also specifically treats a foreign LLC that owns income-producing real property in the state as doing business here, subject to statutory exceptions.
Other states have their own rules.
So rather than automatically creating a new LLC every time you cross a state line, first determine:
Does the existing LLC need to register there, or does a separate entity make more sense?
Should Each Property Have Its Own LLC?
Some investors use a separate LLC for each rental or investment property.
Why?
If several properties are held inside one LLC, a claim against that LLC can potentially put the assets owned by that same entity at risk.
Separating properties into different entities can help separate those property-level risks.
But more LLCs also mean more work.
EACH ENTITY MAY BRING ADDITIONAL:
- Formation fees
- Annual filings
- Registered or resident agent requirements
- Bank accounts
- Accounting
- Tax filings
- Insurance considerations
- Compliance requirements
For an investor with two properties, the right structure may look very different from the structure used for a portfolio of twenty.
The goal is not to create as many LLCs as possible. It is to create a structure that makes sense for the actual risk and portfolio.
Using a Trust
A trust serves a different purpose from an LLC.
For many multi-state property owners, a revocable living trust is primarily an estate-planning tool, not a substitute for an LLC's liability protection.
One of its biggest advantages is probate planning.
If real estate is properly transferred into a revocable living trust, it can generally pass according to the trust terms without going through probate. This can be especially valuable when someone owns real estate in multiple states.
Why Does This Matter Across State Lines?
Suppose a Maryland resident personally owns a vacation home in another state.
After the owner's death, the family may have to deal with probate in Maryland and a separate proceeding involving the out-of-state real estate, depending on the ownership structure and applicable state law.
This is commonly called ancillary probate.
A properly funded trust can help reduce that risk.
But the word “funded” matters. Creating a trust document alone does not move real estate into the trust.
The property's ownership generally must actually be transferred through the appropriate legal process.
Can You Use an LLC and a Trust Together?
Yes, and this can be useful for some real estate investors.
For example, an LLC might own the rental property, while a trust holds the owner's membership interest in the LLC.
That can allow the two tools to serve different purposes:
LLC → property management and liability separation
Trust → estate planning and succession
The exact structure must be designed carefully because ownership transfers can affect financing, taxes, insurance, entity documents, and estate planning.
What About Partnerships or Corporations?
Partnerships and corporations may also be used for real estate ownership, particularly when multiple investors or larger ventures are involved.
These structures can provide ways to define ownership percentages, management responsibilities, profit distributions, and succession.
However, they can also introduce additional legal and tax considerations.
Every State Has Different Rules
A structure that works well for a Maryland property should not automatically be copied for a property in another state.
BEFORE PURCHASING OR RESTRUCTURING OUT-OF-STATE REAL ESTATE, CONSIDER THE LAWS GOVERNING:
- Deeds and title
- LLC registration
- Landlord-tenant relationships
- Short-term rentals
- Property taxes
- Transfer and recordation taxes
- Zoning
- Licensing
- Probate
- Trust administration
Local rules can matter too. A city or county may impose requirements beyond state law.
That is why multi-state planning often requires coordination with legal and tax professionals familiar with the state where the property is located.
Don’t Forget About Taxes
Owning property in multiple states can create tax obligations in more than one jurisdiction.
DEPENDING ON THE PROPERTY AND HOW IT IS USED, AN OWNER MAY NEED TO CONSIDER:
- Property taxes
- State income taxes on rental income
- Federal income taxes
- Capital gains when property is sold
- Transfer or recordation taxes
- Estate or inheritance taxes
- Entity-level taxes or fees
Simply forming an LLC does not automatically reduce your taxes.
Likewise, choosing an entity based only on liability protection without considering its tax treatment can create unintended consequences. For multi-state property owners, legal and tax planning should work together.
Check Before Transferring a Mortgaged Property
Already own the property and thinking about transferring it into an LLC or trust?
Check the loan documents first.
Don’t Treat an LLC as a replacement for Insurance
An LLC can be part of an asset-protection strategy, but it should not be the only layer.
PROPERTY OWNERS SHOULD MAKE SURE THEIR INSURANCE REFLECTS:
- How the property is used
- Who owns it
- Whether it is rented
- Whether short-term rentals are allowed
- The appropriate level of liability coverage
The legal ownership structure and insurance plan should support each other.
A Practical Checklist Before Buying in Another State
Before closing on an out-of-state property, ask:
1. How will I use the property?
Personal residence, vacation home, long-term rental, short-term rental, or another investment?
2. Who should own it?
You personally, joint owners, an LLC, a trust, or another structure?
3. What does the property's state require?
Check entity registration, licensing, tax, landlord-tenant, zoning, and local requirements.
4. What liability does the property create?
A rental property may require a different strategy than a vacation home used only by your family.
5. How will it fit into your estate plan?
Consider what happens to the property or LLC interest when you die.
6. Does your lender allow the proposed structure?
Review financing before transferring ownership.
7. Is your insurance correct?
Make sure the policy matches both the property's use and ownership.
8. Have you reviewed the tax consequences?
Coordinate with a qualified tax professional before making major ownership changes.
Final Thoughts: Build the Right Structure Before You Expand
Owning real estate in multiple states can be a great way to grow and diversify a portfolio, but the ownership structure deserves as much attention as the property itself.
An LLC may help separate certain business liabilities. A trust may simplify estate planning and help avoid probate for properly transferred property. Sometimes using the two together makes sense.
What matters is choosing the structure based on the property, state, risk, tax consequences, and your long-term goals, rather than assuming one approach works everywhere.
KEY TAKEAWAYS
- Real estate laws vary by state, so an ownership structure should be reviewed for each property.
- Personal or joint ownership may be simple, but it may not provide the liability or succession planning an investor needs.
- An LLC can help separate certain property-related liabilities, but its protection is not absolute.
- An out-of-state LLC may need to register as a foreign LLC where it conducts business rather than automatically forming an entirely new LLC.
- Using separate LLCs for different properties can help separate risks, but it also increases costs and administrative work.
- A properly funded trust can be especially useful for multi-state estate and probate planning.
- LLCs and trusts can sometimes work together rather than being an either-or decision.
- Financing, insurance, taxes, and estate planning should all be reviewed before changing ownership.
Planning to Own Property Across State Lines?
If you are a Maryland property owner or investor expanding into another state,
DK Law Group can help you evaluate how your real estate fits into your broader legal and estate plan. When another state's law is involved, appropriate local counsel and tax professionals may also need to be part of the planning process.
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Owning property across state lines involves more than choosing whose name goes on the deed. Your ownership structure, state requirements, taxes, insurance, and estate plan can all affect how the property is protected, managed, and eventually transferred.
