How to Avoid Maryland Inheritance Tax?

The Maryland inheritance tax is not a regulation that is applied equally to every individual. In fact, residents are able to prevent such a liability entirely through smart actions alongside allocation of the asset. Instead of the Maryland estate tax, which applies to the estate itself if it exceeds the $5 million threshold, the inheritance tax in Maryland varies in parallel to the specific beneficiaries who receive the assets—not on the estate as a whole.

In order to prevent surprises, the keystone is to recognize how this tax functions and who is considered outside its reach. We present the most common approaches for Maryland residents below.

1. Transfer Assets to Exempt Beneficiaries

Inheritance tax exemptions in Maryland is considerably generous for family members. The following close relatives are fully exempt:

• Spouses
• Children and stepchildren
• Grandchildren
• Parents and stepparents
• Siblings

In the case of an estate being passed directly to these individuals, no Maryland inheritance tax is imposed. However, gifts to nieces and nephews or cousins, as well as unrelated friends, are taxed at a flat 10%.

2. Give While Alive

It is a fact that lifetime gifting is not subject to Maryland inheritance tax. Such an approach also presents assistance in terms of lowering the total estate size, demonstrating additional benefits in accordance with the Maryland estate tax limit. This limit remains at $5 million. We can exemplify this approach as below:

• Direct cash transfers to children or grandchildren
• Paying tuition or medical expenses on someone’s behalf
• Funding a 529 college savings plan

3. Set Up a Trust

A trust structure can be helpful in controlling allocation of the assets and present a cleaner path to prevent probate in Maryland. In parallel to the fact that how the trust is created, it may have a lowering impact on inheritance as well as estate tax exposure. Instances in this scope can be listed as follows:

• Bypassing the court process for smoother transitions
• Appointing exempt beneficiaries to receive the trust’s assets
• Structuring conditions that spread out taxable transfers over time

4. Title Assets with Survivorship in Mind

Joint ownership with rights of survivorship enables specific assets—like real estate and bank accounts—to transfer directly to a co-owner. If the mentioned individual is exempt from inheritance tax, such a smart strategy removes both tax and court involvement from the equation.

Final Thought

The Maryland inheritance avoidance tax does not necessitate complex planning actions—but it does require specific actions in advance. Yet, the timing indicator and beneficiary designation matter. Watter CPA is here to present 360-degree guidance in this area.