Maryland Inheritance Tax: What To Know
Learn what the Maryland inheritance tax is, who pays it and how residents and property owners in Maryland can manage it.
Maryland is one of only a few states that still collects an inheritance tax. If you’re planning to leave assets to loved ones—or expect to receive an inheritance—it’s important to understand the Maryland inheritance tax.
While many people confuse it with the estate tax, the two are entirely different. The estate tax is paid by the estate. The inheritance tax is paid by the person receiving the assets, depending on their relationship to the person who passed.
The Maryland inheritance tax is a tax on the right to receive property from someone’s estate. It applies to most types of inherited property—including money, real estate, personal belongings, and even business interests—unless the recipient is exempt. The tax rate is 10% of the value of the inherited property, and it applies only to non-exempt beneficiaries. That means who inherits the assets matters just as much as what they inherit.
Maryland exempts many close family members from inheritance tax. These beneficiaries do not pay: spouses, children (biological, adopted, or stepchildren), parents and grandparents, siblings, grandchildren, and spouses of children and grandchildren. Everyone else, however, is generally subject to the tax: nieces and nephews, cousins, friends, unmarried partners, and in-laws.
Who Pays Maryland Inheritance Tax
If someone in the non-exempt category receives a gift through a will, trust, or even a transfer made within two years of passing, Maryland may apply the 10% inheritance tax to that gift.
Let’s say Thomas, a Maryland resident, leaves $100,000 to his niece, Carla. Because Carla is not an exempt beneficiary under Maryland law, she is subject to a 10% inheritance tax. That means Carla will owe $10,000 to the state of Maryland. The remaining $90,000 is hers to keep. Now imagine instead that Thomas leaves the same amount to his daughter, Rachel. Because children are exempt, Rachel receives the full $100,000 with no inheritance tax.
One Caveat
Technically, the beneficiary is responsible for paying the Maryland inheritance tax. However, a will or trust can specify that the tax should be paid by the estate instead. This is known as “paying the tax out of the residuary estate.”
However, if the documents don’t say otherwise, the beneficiary will be responsible for the tax. And they must pay it within nine months of the date of passing to avoid penalties and interest.
Assets That Fall Under the Tax
Most assets passed to non-exempt beneficiaries are subject to the Maryland inheritance tax, including:
- Cash
- Real estate located in Maryland
- Bank and investment accounts
- Personal property like jewelry or vehicles
- Shares of Maryland-based businesses
There are some exceptions. Life insurance proceeds, for instance, are not subject to inheritance tax if they’re paid directly to a named beneficiary. Also, jointly held property between a married couple typically avoids the tax, as spouses are exempt.
Ways People Reduce Their Exposure
Here are a few strategies that Maryland residents often use to reduce or eliminate exposure to this tax for their beneficiaries:
1. Gifting During Lifetime
Maryland doesn’t have a gift tax. Many people reduce the size of taxable inheritances by making gifts while they’re still living.
2. Naming Exempt Beneficiaries
Leaving property to exempt individuals—such as children or siblings—avoids the inheritance tax altogether.
3. Structuring Bequests Through Trusts
Some use trusts to delay or direct distributions in ways that minimize the tax burden. (Though trusts don’t automatically eliminate inheritance tax.)
4. Paying the Tax from the Estate
Including instructions in a will or trust to cover inheritance taxes from estate funds can protect beneficiaries from paying out of pocket.
(Read More: Learn about revocable trusts in Maryland versus Nevada.)