Understanding Maryland Estate and Inheritance Taxes: A Clear Guide
Estate Planning Maryland
Understanding Maryland Estate and Inheritance Taxes: A Clear Guide
What Maryland families should know about estate tax, inheritance tax, exemptions, and planning ahead.
Taxes may not be the first thing that comes to mind when creating an estate plan, but they can affect how much of your property ultimately reaches the people you care about.
Maryland is unusual because it has both an estate tax and an inheritance tax. These are two different taxes with different rules.
The good news is that many Maryland estates and beneficiaries will not owe either tax. Understanding the difference can help you determine whether tax planning should be part of your estate plan.
Estate Tax vs. Inheritance Tax: What’s the Difference?
The names sound similar, but the taxes work differently.
Estate Tax
Generally imposed based on the value of the estate before assets are distributed to beneficiaries.
Inheritance Tax
Focuses on certain property received by a beneficiary. Whether it applies depends largely on who receives the property and whether an exemption applies.
Maryland's inheritance tax rate for nonexempt beneficiaries is generally 10% of the clear value of the property received.
Think of it this way:
Estate tax → focuses on the estate.
Inheritance tax → focuses on the taxable transfer to the beneficiary.
An estate could potentially be affected by both taxes, although Maryland provides a credit for inheritance tax paid against Maryland estate tax liability.
Maryland Estate Tax
Maryland has its own estate tax system separate from the federal estate tax.
For individuals dying in 2026, Maryland's estate tax exclusion remains $5 million. Maryland has used the $5 million exclusion for deaths occurring on or after January 1, 2019.
That is significantly lower than the 2026 federal estate and gift tax exemption of $15 million per individual.
This difference matters.
An estate could be below the federal exemption but still require consideration of Maryland estate tax.
What Counts Toward the Estate?
For estate tax purposes, the gross estate can include much more than money sitting in a bank account.
DEPENDING ON THE CIRCUMSTANCES, IT CAN INCLUDE:
- Real estate
- Bank and investment accounts
- Business interests
- Retirement assets
- Life insurance proceeds in certain circumstances
- Annuities
- Jointly owned property
- Trust interests in certain circumstances
- Vehicles and valuable personal property
Property is generally valued using its fair market value, rather than simply what the person originally paid for it.
This means an estate may be worth considerably more than someone expects, especially after years of growth in real estate, investments, or a business.
How Much Can Maryland Estate Tax Be?
Maryland's estate tax calculation is more complicated than simply applying one percentage to the entire estate.
Under current Maryland rules, the credit used to determine the Maryland estate tax cannot exceed 16% of the amount by which the taxable estate exceeds the applicable Maryland exemption amount.
So it would be misleading to say that every taxable Maryland estate simply pays a flat 16% tax.
Who Pays Maryland Inheritance Tax?
This is where the beneficiary's relationship to the deceased person becomes especially important.
Many close family members are exempt from Maryland inheritance tax.
EXEMPT BENEFICIARIES GENERALLY INCLUDE:
- Spouses
- Registered domestic partners
- Parents and grandparents
- Children and other qualifying lineal descendants
- Stepchildren and former stepchildren
- Stepparents and former stepparents
- Brothers and sisters
- Certain spouses and surviving spouses of children or lineal descendants
Maryland law also provides exemptions for certain other transfers and qualifying organizations.
What About Registered Domestic Partners?
This is an important update to the information families may have encountered in older Maryland estate-planning materials.
Since changes to Maryland law took effect in 2023, property passing to a registered domestic partner can qualify for the inheritance tax exemption.
Maryland also maintains a more limited exemption involving certain jointly held primary residences for domestic partners who meet separate statutory requirements but are not registered.
What If the Beneficiary Is Not Exempt?
When property passes to someone who does not qualify for an exemption, Maryland inheritance tax is generally 10% of the clear value of the taxable property.
For example, leaving property to a close friend may have a different inheritance tax result than leaving the same property to a child or sibling.
Are All Transfers Subject to Inheritance Tax?
No.
Maryland provides several inheritance tax exemptions in addition to those based on family relationships.
For example, life insurance proceeds payable directly to a beneficiary other than the insured person's estate are generally exempt from Maryland inheritance tax. Certain pension or benefit payments, charitable transfers, and other qualifying transfers may also be exempt.
Filing Maryland Estate Tax Returns
A Maryland estate tax return is generally required when the federal gross estate, plus certain adjustments, equals or exceeds Maryland's estate tax exemption for the year of death.
For deaths occurring in 2019 and later, that exemption is $5 million.
The Maryland estate tax return, Form MET-1, is generally due nine months after the date of death. Maryland also provides procedures for requesting an extension of time to file.
Can Married Couples Use Portability?
Yes, but this is an area where planning matters.
Maryland permits a surviving spouse to elect to use certain unused Maryland estate tax exclusion from a deceased spouse. Maryland's portability rules are separate from federal portability rules.
Federal law also provides portability of a deceased spouse's unused federal exemption when the necessary requirements are satisfied.
Estate Tax Planning Is More Than an Exemption Number
Most Maryland families will never have a federally taxable estate, and many will not owe Maryland estate tax either.
STILL, TAX PLANNING CAN BECOME IMPORTANT WHEN A FAMILY HAS:
- Appreciated real estate
- Significant investment accounts
- Life insurance
- Business interests
- Multiple properties
- A rapidly growing estate
- Beneficiaries who may be subject to inheritance tax
Estate planning strategies may include trust planning, lifetime gifting, charitable giving, marital deduction planning, business succession planning, and beneficiary reviews, depending on the family's circumstances.
What About Lifetime Gifts?
Giving property during your lifetime can sometimes play a role in estate tax planning, but gifting should not be approached solely as a way to “get under” an estate tax threshold.
Gifts can have federal gift tax, income tax, basis, asset-protection, and long-term financial consequences.
For 2026, the federal estate and gift tax exemption is $15 million per individual, while the annual federal gift tax exclusion is $19,000 per recipient.
When Should You Review Your Estate Plan for Tax Issues?
Tax planning should not be a one-time exercise.
CONSIDER REVIEWING YOUR ESTATE PLAN WHEN:
- Your estate grows significantly
- You purchase or sell real estate
- You inherit substantial assets
- You start, grow, or sell a business
- You marry or divorce
- A beneficiary changes
- You move into or out of Maryland
- Federal or Maryland tax laws change
Final Thoughts: Know Which Tax Rules May Affect Your Legacy
Maryland estate and inheritance taxes are easy to confuse, but they address different things.
Estate tax focuses primarily on the value of the estate. Inheritance tax depends largely on who receives taxable property.
Maryland's $5 million estate tax exclusion is substantially lower than the $15 million federal exemption for 2026, which means Maryland residents should not rely solely on the federal threshold when reviewing their plans.
At the same time, many close family members and registered domestic partners are exempt from Maryland inheritance tax.
Understanding these rules before they become an issue can help families make more informed decisions about beneficiaries, property ownership, gifting, trusts, and long-term estate planning.
KEY TAKEAWAYS
- Maryland has both an estate tax and an inheritance tax.
- Maryland’s estate tax exclusion is $5 million for deaths occurring in 2026.
- The federal estate and gift tax exemption is $15 million per individual for 2026.
- Maryland inheritance tax is generally 10% for nonexempt beneficiaries.
- Many close family members and registered domestic partners are exempt from Maryland inheritance tax.
- A Maryland estate tax return is generally due nine months after death when the filing threshold is met.
- Married couples may have Maryland and federal portability options, but applicable filing requirements matter.
- Estate planning should consider who receives your assets, how assets are owned, and their potential tax treatment, not simply the total value of the estate.
Could Estate or Inheritance Tax Affect Your Plan?
If you're unsure how Maryland estate or inheritance tax may affect your family,
DK Law Group can help you review your assets, beneficiaries, and estate-planning options.
🎮 Interactive Game
Estate Tax or Inheritance Tax?
Maryland has both, but they work differently. Can you tell which rule applies?
Read each of the five Maryland scenarios, choose the best answer, and review the explanation.
Correct Answer:
Why?
Choose one answer to reveal the explanation.
🏆 Final Score
Estate tax focuses on the estate itself, while inheritance tax can depend on who receives the property. Understanding that difference makes the rest of the rules easier to follow.
This game is for general educational purposes and is not legal or tax advice. Tax rules and individual circumstances can change.
Sources: Maryland Comptroller · IRS 2026 adjustments
