Maryland Estate Tax: A Rundown
Understanding Maryland estate tax helps in effective estate planning, mitigating tax liabilities, and ensuring smooth transfer of wealth.
Maryland is one of the few states with its own estate tax (and the only state with an inheritance tax too). If you live in the state—or own property there—you may be subject to this tax, which is separate from the federal estate tax.
The Maryland estate tax is a tax on the transfer of assets from someone who has passed to their heirs or beneficiaries. It applies when the value of the estate exceeds a certain threshold, known as the exemption amount.
As of 2024, Maryland’s estate tax exemption is $5 million. This means if your taxable estate is valued below that amount, no Maryland estate tax is due. If it’s above $5 million, the excess amount may be taxed at rates ranging from 0.8% to 16%, depending on the total value of the estate.
Importantly, Maryland does not index its exemption to inflation, unlike the federal estate tax. This means the exemption amount may stay the same even as asset values rise over time.
Maryland Estate Tax vs. the Federal Tax
Maryland’s estate tax is completely separate from the federal tax.
In 2024, the federal estate tax exemption was $13.61 million. So, if someone’s estate is valued at $6 million, it wouldn’t owe federal estate tax. But it could owe tax on the $1 million over Maryland’s $5 million exemption.
This dual exposure is something Maryland residents—and anyone with property in the state—should be aware of when building an estate plan.
A Real-World Example: The $6.2 Million Estate
Let’s say John, a Maryland resident, passes away and leaves behind an estate worth $6.2 million. Here’s what happens:
His estate is under the federal exemption, so no federal estate tax is due. But because it’s $1.2 million above the $5 million exemption, the estate may owe tax on that excess amount. Depending on how his estate is structured, that could result in a bill of over $100,000.
Does the State Have an Inheritance Tax Too?
Yes. Maryland is unique in that it has both an estate tax and an inheritance tax.
While the estate tax is paid out of the estate before assets are distributed, the inheritance tax is paid by the person receiving the inheritance. Although there are many exemptions.
Immediate family members—like spouses, children, parents, and siblings—are generally exempt from inheritance tax. But nieces, nephews, cousins, or close friends may face a 10% inheritance tax on what they receive.
Real-World Example: A Gift to a Friend
Imagine Sarah leaves $200,000 to her lifelong friend, Dana. Because Dana isn’t an exempt beneficiary, Maryland’s 10% inheritance tax applies. That means Dana could owe $20,000 to the state.
Ways To Reduce Maryland Estate Tax Exposure
Many Maryland residents use strategies to reduce their exposure:
1. Lifetime Gifting
Gifting assets during your lifetime can reduce the size of your taxable estate. Maryland does not have a gift tax, although gifts may still count for federal reporting.
2. Credit Shelter Trusts
Married couples can use a credit shelter trust (also called a bypass trust) to make full use of both spouses’ exemptions. These can potentially protect up to $10 million.
3. Charitable Giving
Donating to qualified charities can reduce the taxable estate. Many people use charitable remainder trusts or outright gifts for this purpose.
4. Owning Assets Outside Maryland
Because Maryland generally taxes only assets located in the state (or owned by state residents), structuring ownership carefully can sometimes reduce exposure.
Planning Makes All the Difference
The Maryland estate tax doesn’t affect everyone—but when it does, it can significantly reduce what loved ones receive. That’s why many people take proactive steps to understand the tax landscape and explore planning options.
(Read More: Learn about revocable trusts in Maryland versus Nevada.)