If you live in Maryland and are thinking about how your assets will pass to the next generation, you need to understand two separate state taxes: the Maryland estate tax and the Maryland inheritance tax. They work differently, apply to different people, and can both take a meaningful bite out of what you leave behind.
This guide covers the 2025 and 2026 exemption amounts, who is exempt from the inheritance tax, and practical strategies Maryland families use to minimize tax exposure.
Maryland Estate Tax: The Basics
The Maryland estate tax is a tax on the transfer of a deceased person's estate. It is calculated on the taxable estate — generally everything the person owned or controlled at death, including real estate, bank accounts, investments, retirement accounts, business interests, and certain life insurance proceeds.
For 2025 and 2026, the Maryland estate tax exemption is approximately $5 million per person, adjusted for inflation. Estates valued below that threshold generally owe no Maryland estate tax. Married couples can combine exemptions through portability, allowing them to shield roughly $10 million in assets.
The tax rate is progressive, with most taxable Maryland estates paying between 8% and 16% on the value above the exemption. Because Maryland's exemption is far lower than the federal exemption — which is over $13 million — many families who owe no federal estate tax can still owe Maryland estate tax.
Maryland Inheritance Tax: Who Pays 10%
Maryland also imposes a 10% inheritance tax on property passing to certain beneficiaries. Unlike the estate tax, which looks at the size of the estate, the inheritance tax looks at the relationship between the deceased and the beneficiary.
The following close relatives are exempt from Maryland inheritance tax:
- Spouses
- Parents and grandparents
- Children, grandchildren, and other lineal descendants
- Siblings
- Registered domestic partners in some cases
- Qualified charities
Non-exempt beneficiaries — such as nieces, nephews, cousins, friends, unregistered partners, and most trusts for non-lineal heirs — generally pay 10% on the value they inherit. The tax is due even if the estate itself is below the estate tax exemption.
Key Differences Between Estate Tax and Inheritance Tax
| Factor | Maryland Estate Tax | Maryland Inheritance Tax |
|---|---|---|
| What triggers it | Estate value above ~$5 million | Beneficiary relationship |
| Who pays | The estate | The beneficiary |
| Rate | Progressive, up to ~16% | Flat 10% for non-exempt heirs |
| Spouse exemption | Yes, plus portability | Yes |
Strategies to Minimize Maryland Estate and Inheritance Tax
With proper planning, many Maryland families can reduce or eliminate these taxes. The right strategy depends on your asset level, family structure, and who you want to benefit.
1. Use Both Spouses' Estate Tax Exemptions
Married couples should structure their estate plan to use both $5 million exemptions. Options include credit-shelter trusts, disclaimer trusts, or electing portability on the Maryland estate tax return. Without planning, the first spouse's exemption can be wasted.
2. Make Lifetime Gifts
Maryland does not have a state gift tax. Gifting assets during life can reduce the size of your taxable estate. Federal annual exclusion gifts — currently $18,000 per person per year — and direct payments for medical or educational expenses are common starting points.
3. Use Irrevocable Life Insurance Trusts
Life insurance proceeds payable to an individual beneficiary are generally not subject to Maryland inheritance tax if the beneficiary is exempt. However, if the estate is the beneficiary or owner, the proceeds may be included in the taxable estate. An irrevocable life insurance trust can keep proceeds out of the estate while still providing liquidity to heirs.
4. Plan for Non-Lineal Heirs
If you want to leave assets to nieces, nephews, cousins, friends, or unregistered partners, plan for the 10% inheritance tax. Strategies include leaving them specific tax-paid bequests, using lifetime gifts, or directing those assets through vehicles that may reduce the tax impact.
5. Charitable Bequests
Gifts to qualified charities are exempt from both Maryland estate tax and inheritance tax. Charitable remainder trusts and donor-advised funds can also provide income tax benefits during life while reducing estate tax exposure at death.
6. Business and Real Estate Planning
Family limited partnerships, LLCs, and minority-interest valuation discounts can reduce the taxable value of business and real estate interests. These strategies require careful drafting and valuation but can be powerful for families with significant Maryland assets.
How Johnson Law Helps With Maryland Estate Tax
At Johnson Law LLC in Annapolis, we help Maryland families build estate plans that account for both state and federal taxes. Our flat-fee Family Trust Plan includes trust drafting, tax-aware beneficiary designations, and funding guidance.
- Flat fees — no hourly billing surprises
- Trusts designed to use both spouses' Maryland exemptions
- Gifting and inheritance-tax planning for non-lineal heirs
- Coordination with your CPA or tax advisor
- Maryland-licensed attorney serving Anne Arundel, Prince George's, and surrounding counties
Worried about Maryland estate or inheritance tax?
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