Understanding Maryland Estate Tax: What Families Need to Know

Key Takeaways

• Maryland imposes a state-level estate tax separate from the federal estate tax.
• The estate tax is calculated based on the value of a deceased person's estate at death.
• Certain individuals and assets may be exempt or eligible for deductions.
  
  

Estate taxes can significantly affect what beneficiaries ultimately receive after a loved one passes away. While many are familiar with the federal estate tax, fewer realize that several states—including Maryland—also impose their own estate tax.

Maryland is one of the few states with both a state estate tax and a separate inheritance tax, creating a unique landscape for estate planning. For families living in or owning property in Maryland, understanding these tax obligations is essential for preserving assets and minimizing burdens on heirs.

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What Is the Maryland Estate Tax?

The Maryland estate tax is a state-imposed tax on the transfer of assets after someone’s death, separate from the federal estate tax. While the federal estate tax applies only to very large estates (currently over $13.61 million in 2024), Maryland’s threshold is significantly lower.

The estate tax should not be confused with the Maryland inheritance tax, which is levied on certain beneficiaries receiving assets. While inheritance tax depends on the relationship to the deceased, estate tax is based on the total value of the estate.

How Is Maryland Estate Tax Calculated?

The tax is calculated by first determining the gross estate, which includes:

• Real estate
• Bank accounts and investments
• Business interests
• Life insurance proceeds (if owned by the deceased)
• Personal property (cars, jewelry, etc.)

From this total, allowable deductions are subtracted, including:

• Debts and liabilities
• Funeral expenses
• Charitable contributions
• Administration expenses

The remaining net estate value is then compared to the Maryland estate tax exemption amount to determine if tax is owed. If the net value exceeds the threshold, it is taxed according to the state's tiered rate schedule.

What Is the Maryland Estate Tax Rate?

As of recent updates, the Maryland estate tax exemption is $5 million per individual. Estates valued above this amount may be taxed.

The Maryland estate tax rate is marginal, ranging from 0.8% to 16%, depending on the size of the estate. Like federal income tax, the rate is applied in brackets, so only the portion above each threshold is taxed at higher rates.

For example:

• The first $1 million over the exemption might be taxed at 0.8%–5%
• Larger estates may reach the maximum rate of 16%

Who Is Subject to the Maryland Estate Tax?

The Maryland estate tax applies to:

• Maryland residents with estates exceeding the $5 million exemption.
• Nonresidents who own real or tangible personal property located in Maryland (such as vacation homes or business assets).

Even if assets are jointly owned or held in a trust, they may still be subject to inclusion in the estate, depending on how they are structured.

Who Is Exempt from the Maryland Estate Tax?

Several categories of estates and transfers are exempt or eligible for deductions, including:

• Estates valued under $5 million
• Transfers to a surviving spouse (marital deduction)
• Charitable donations to qualified nonprofits

Common estate planning strategies can also reduce the taxable estate:

• Credit shelter trusts (AB trusts) for married couples
• Lifetime gifting strategies to reduce assets before death
• Using the annual federal gift tax exclusion ($18,000 per recipient in 2024)

How to File and Pay Maryland Estate Tax

Filing the Maryland estate tax involves submitting Form MET-1 to the Maryland Comptroller’s Office within nine months of the decedent’s death. An automatic six-month extension may be requested, but interest will still accrue on any unpaid tax.

Documents typically required include:

• Death certificate
• A complete list and valuation of assets
• Copies of the federal estate tax return (Form 706), if applicable
• Appraisals and relevant financial statements

Payment options include check, electronic funds transfer, or wire. Late filings may result in penalties and interest charges.

Estate Planning Strategies to Minimize Tax Burden

Thoughtful estate planning can reduce exposure to the Maryland estate tax. Strategies include:

• Credit Shelter Trusts (AB Trusts): These allow spouses to preserve both of their $5 million exemptions, potentially doubling the protected amount.
• Lifetime Gifts: Gifting assets before death using the federal annual gift exclusion can reduce the taxable estate.
• Irrevocable Life Insurance Trusts (ILITs): These keep life insurance proceeds out of the taxable estate.
• Charitable Giving: Donations reduce estate size and may create lasting philanthropic impact.

Working with a Maryland-based estate planning attorney ensures your plan aligns with state-specific rules and tax codes.

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FAQs

Q: What is the Maryland estate tax exemption in 2025?
A: The exemption remains at $5 million and is not indexed to inflation.

Q: Does Maryland also have an inheritance tax?
A: Yes. Maryland imposes a separate inheritance tax, usually at 10%, on certain heirs. Immediate family members are typically exempt.

Q: Are spouses exempt from Maryland estate tax?
A: Yes. Transfers to a surviving spouse are fully exempt under the marital deduction.

Q: Can I avoid Maryland estate tax with a trust?
A: Trusts can help reduce the taxable estate, especially AB trusts, but professional legal guidance is recommended.

Q: What happens if I live outside Maryland but own property there?
A: Your Maryland-based property could still be subject to the estate tax. Planning is crucial in this situation.

Understanding the Maryland estate tax is essential for families hoping to protect what they’ve built. Whether you're navigating the loss of a loved one or planning your own estate, knowing the tax implications can help ensure a smoother financial transition for beneficiaries.

With thoughtful Maryland estate tax planning strategies—from trusts to gifting—families can reduce their exposure and preserve more wealth. For personalized guidance, consult a qualified estate planning attorney familiar with Maryland law.

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