Maryland Estate Tax: Fundamental Facts You Must Know

Planning for the inevitable is never easy. But when estate taxes step in, even a legacy of care can turn into significant confusion. It is correct that Maryland is one of the rare states that impose both an estate tax and an inheritance tax. This actually creates two obligations for estates as well as beneficiaries. In case Maryland residents with considerable assets—or who expect to receive a substantial inheritance—surrounding taxation liabilities should be evaluated in detail.

There is a general agreement that smart planning practices may present assistance in reducing exposure to the Maryland estate tax. Specific inheritance tax exemptions in Maryland are possible too. In parallel, it is possible to avoid probate in Maryland with a smoother transfer of assets by preventing delays or extra spending.

The Maryland estate tax limit should also be noted, as well as how it compares to federal thresholds and what counts toward a taxable estate in order to minimize the estate’s tax liability and safeguard wealth for future generations.

What Is the Estate Tax Limit in Maryland?

The Maryland estate tax limit is set at $5 million with the latest update in the taxation period of 2024. Such an exemption is not indexed for inflation. In other words, the threshold remains fixed from year to year unless the law changes.

In the case that the value of an estate exceeds this $5 million threshold at the time of death, it is true that the excess amount might be subject to the Maryland estate tax. The mentioned taxation is evaluated on the estate itself, not on the individual heirs. The calculation changes in accordance with the fair market value of assets as of the date of death. Major subjects to consider are presented below:

The estate, not the beneficiaries, is responsible for paying the tax.
Assets are valued at fair market value—not their original purchase price.
The tax applies to Maryland residents and also to non-residents who own real estate or tangible personal property located in Maryland.

The estate’s value and how it compares to the Maryland estate tax limit should be taken into consideration in order to lower taxation liabilities and make sure of a smoother transition of wealth.

How Much Can You Inherit Before Paying Taxes in Maryland?

We are aware that inheriting a loved one’s legacy should feel like a blessing—not a taxation bill waiting in the wings. Instead of the Maryland estate tax, which varies in parallel to the entire estate value, the Maryland inheritance tax changes in line with who receives the assets. Such a tax is assessed on specific beneficiaries and is calculated in accordance with the value of what they inherit—not on the total estate.

There are broad inheritance tax exemptions in Maryland for close family members. The following individuals are fully exempt:

Spouses
Children and stepchildren
Grandchildren
Parents and stepparents
Siblings

However, those who are more distantly related—or unrelated—like nieces, nephews, cousins, or friends, have an obligation of 10% Maryland inheritance tax on the assets they receive.

How to Avoid Maryland Inheritance Tax

Why let taxes claim a piece of the legacy when smart planning can protect it in the family? Lowering or completely eliminating the Maryland inheritance tax usually comes down to how and when assets are transferred. While the Maryland estate tax applies to the entire estate value, the inheritance tax varies in line with the recipient—and smart planning can present assistance in making sure assets pass to heirs without resulting in unnecessary tax liabilities. Within this scope, the common strategies are demonstrated below:

Gifting assets during the lifetime: Correct. Lifetime gifts are not subject to Maryland inheritance tax and can lower the size of the taxable estate.
Naming tax-exempt beneficiaries: It should also be considered to leave assets to children, spouses, siblings, or parents—all of whom fall under inheritance tax exemptions in Maryland.
Creating trusts: Lastly, a structured trust can aid in controlling distributions, lower the estate's taxable value, and present a way to avoid probate in Maryland, with a simpler transfer process.

How Much Does an Estate Have to Be Worth to Go to Probate in Maryland?

In Maryland, the probate process is necessary for most estates unless they do not satisfy specific value thresholds. Within this scope, the size of the estate determines whether it must go through formal probate or qualifies for a simplified alternative.

Estates valued over $50,000 are subject to formal probate.
If the surviving spouse is the sole heir, the threshold increases to $100,000.
Estates below these limits might fulfill qualifications for small estate probate which is a quicker and less costly process.

Probate has the potential to impact how soon heirs receive their inheritance, whether the estate becomes part of the public record, and how assets are taxed or distributed. It may be possible to avoid probate in Maryland entirely with a smart estate planning approach—particularly via trusts and lifetime gifting that also support tax efficiency in accordance with the Maryland estate tax system.

How to Avoid Probate in Maryland

Individuals naturally prefer to avoid probate in Maryland in order to simplify estate administration. Other motivations cover delay prevention and keeping financial matters private. Fortunately, there are proven strategies that present assistance for assets to pass directly to beneficiaries without going through the court-supervised process.

Mentioned probate-avoidance methods can be outlined as below:

Establishing a revocable living trust: Assets placed in a trust might pass to named beneficiaries without probate involvement.
Holding property jointly with rights of survivorship: Real estate and vehicles or accounts held this way automatically transfer to the surviving owner.
Leveraging beneficiary designations: Retirement plans and life insurance policies alongside financial accounts with transfer-on-death (TOD) or payable-on-death (POD) designations bypass probate entirely.

In addition to preventing delays, these strategies might have a reducing impact on the size of the taxable estate and present assistance in managing Maryland estate tax exposure.

Final Note

In a nutshell, with both a Maryland estate tax and a Maryland inheritance tax in place, early and smart estate planning is fundamental. From this perspective, the Maryland estate tax limit should be taken into consideration along with the available inheritance tax exemptions in Maryland in order to preserve more of the estate for the heirs.

No matter if it is intended to lower the estate’s taxable value, protect the family from unnecessary costs, or avoid probate in Maryland, even simple actions—like setting up a trust or updating beneficiary designations—can establish a considerable difference. For custom-tailored guidance, contact Watter CPA today for smarter plans.