It should be acknowledged that there is no fixed amount that guarantees an inheritance will be tax-free—because federal and state rules look at more than just the number. Yet, the type of tax involved, the size of the estate, and most importantly, the relationship between the person who passed away and the beneficiary should be taken into consideration.
It is true that the federal government allows up to $13.61 million to be passed on without triggering estate taxes for 2024. Such an exemption is applied to the estate itself, not to each beneficiary. In case the total estate value stays below this threshold, no federal estate tax is due before distributions are made.
States generally follow the federal model or impose no estate tax at all. However, some states do. And a few go even further by collecting inheritance taxes from beneficiaries—Maryland is one of them.
States like Maryland have their own estate tax exemption, which is considerably lower. For instance:
In other words, someone inheriting $1 million from a spouse or child pays nothing. But that same amount left to a friend or cousin could generate a $100,000 tax bill in Maryland.
The mentioned change in parallel to the elements below:
Specific estates pay before assets are passed on. Inheritance tax, however, comes after the distribution and is usually paid by the person receiving the gift—unless the estate specifically covers it.
So, what is the most you can inherit without paying taxes? The answer would depend entirely on how you inherit and who you inherit from. Spouses, children, and siblings typically pay nothing. However, friends and distant relatives may face a 10% hit—even on modest sums. Estate size matters too, but it is not the mere factor.
In the context of planning to leave or receive an inheritance, smart structuring—like leveraging trusts or gifting during a lifetime—can shift that number in your favor. If you are not sure about these tax implications, contact Watter CPA today for financial clarity.
