Maryland Estate Planning 2026: The Only State With Both Estate Tax and Inheritance Tax

Maryland occupies a singular position among all fifty states: it is the only state in the country that levies both a state estate tax and a state inheritance tax. The estate tax applies to estates above $5,000,000 — at graduated rates from 0.8% to 16%. The inheritance tax applies at a flat 10% to assets passing to non-exempt heirs (nieces, nephews, cousins, unrelated individuals) regardless of estate size. For many Maryland families in the $5M–$15M range, there is zero federal estate tax exposure — but a very real Maryland estate tax bill that careful planning can substantially reduce or eliminate. This guide explains both taxes, how they interact, and the specific strategies that matter for Montgomery County, Howard County, Baltimore, and the broader Maryland HNW corridor.

How Maryland estate tax works in 2026

Maryland computes its estate tax using the state death tax credit formula from the pre-2001 federal tax code (IRC §2011, which the federal government repealed in 2001 but Maryland preserved). The result is a graduated rate that starts at approximately 0.8% on amounts just above the $5M exemption and climbs to a top rate of 16% on the portion of the adjusted taxable estate above approximately $10.04M.¹

The most important planning observation: Maryland's $5M exemption is dramatically lower than the federal $15M threshold. Families with estates between $5M and $15M owe Maryland estate tax but owe no federal estate tax at all. Every dollar of Maryland estate tax in that range is state-only exposure — which means federal strategies that shelter estate from federal tax (SLATs, GRATs, dynasty trusts) also eliminate Maryland estate tax on the same dollars, amplifying the planning value.

Approximate figures based on Maryland's graduated rate structure (0.8%–16%). Exact liability requires computation using the official MET-1 instructions. Assumes no marital or charitable deductions. Federal estate tax reflects $15M exemption (OBBBA, July 2025).

Maryland inheritance tax: who pays and who is exempt

Maryland's inheritance tax applies to the value of property passing from a decedent to a non-exempt heir — regardless of the size of the estate. It is entirely separate from the estate tax and is administered by the Register of Wills in the county where the decedent was domiciled.³

Heirs exempt from Maryland inheritance tax

The following persons receive Maryland property entirely free of the 10% inheritance tax:

• Surviving spouse
• Child, stepchild, grandchild, great-grandchild (and other lineal descendants)
• Parent, grandparent (and other lineal ancestors)
• Sibling (brother or sister)
• Child's spouse (son-in-law, daughter-in-law)
• Registered domestic partner (for decedents dying on or after October 1, 2023)

Heirs subject to 10% Maryland inheritance tax

The 10% flat rate applies to property passing to anyone outside the exempt list above — including nieces and nephews, aunts and uncles, cousins, and unrelated individuals (friends, domestic partners not registered, charities that are not §501(c)(3) organizations).

For a Maryland family with, say, $500,000 in assets passing to a niece who is the primary beneficiary — the inheritance tax bill is $50,000. This is true even if the total estate is well below the $5M estate tax exemption. The inheritance tax is a direct tax on the transfer, not a wealth threshold.

The credit: inheritance tax paid offsets Maryland estate tax

Maryland prevents true double taxation through a credit mechanism: inheritance tax paid by the estate is credited dollar-for-dollar against the Maryland estate tax owed on the same assets.⁵ This means a large estate that owes both taxes doesn't pay the full amount of each separately; the inheritance tax payment reduces the estate tax bill.

Practical effect: for property passing to exempt heirs (children, spouse), no inheritance tax applies at all and no credit is generated or needed. For property passing to a niece with a $1M bequest in a $12M estate, the $100K inheritance tax is credited against the $620K Maryland estate tax — the combined effective tax is still approximately $620K, not $720K. The credit prevents pyramiding but doesn't eliminate either tax on its own.

Maryland portability: an important planning distinction

Maryland is one of the few states with estate tax that allows portability — the ability to transfer a deceased spouse's unused $5M exemption to the surviving spouse. This is done via Form MET-1, which must be filed within 9 months of the decedent's death (extendable). For portability-only filings (where no estate tax is due but you want to preserve the unused exemption), Maryland allows filing within 2 years of death.²

For a couple with $10M combined who uses portability correctly: the surviving spouse can shelter up to $10M (their own $5M plus the deceased spouse's $5M DSUE) from Maryland estate tax. If the estate stays at or below $10M at the second death, no Maryland estate tax is due.

Portability vs. credit shelter trust: which is better for Maryland couples?

Maryland portability is useful — but the credit shelter (bypass) trust is still often the superior strategy for several reasons:

For most Maryland couples with estates between $8M and $15M, the combination of a bypass trust (to shelter growth) plus Maryland portability as a backstop gives the best protection. At the first death, the bypass trust receives assets up to the $5M exemption; remaining assets pass to the surviving spouse (marital deduction, zero estate tax). The bypass trust assets and their future appreciation are permanently excluded from the survivor's estate.

Annual gifting: Maryland's most accessible strategy (no state gift tax)

Maryland has no state gift tax and no lookback period. Annual exclusion gifts remove assets from the Maryland taxable estate permanently — with no Maryland gift tax tracking, no filing requirement, and no recapture at death.⁴

A Maryland couple with two adult children and four grandchildren can give:

• $38,000/year × 6 recipients (children + grandchildren) = $228,000/year
• Add spouses of children: $38,000/year × 2 = $76,000/year
• Total: $304,000/year removed from the Maryland taxable estate — with no MD gift tax, no federal gift tax, and no reduction in either the $5M MD or $15M federal lifetime exemption

Over 15 years, a systematic $304,000/year program removes $4.56M from the estate — before accounting for compounding on the gifted assets. On a $12M Maryland estate, that's potentially enough to bring the estate below the level where the bypass trust alone handles the remainder.

529 superfunding ($95,000 per grandchild, 5-year election) removes an additional $570,000+ per grandchild-couple from the estate with no MD gift tax impact. Direct tuition and medical payments to providers (IRC §2503(e)) are unlimited and completely excluded from both federal and Maryland gift tax.

Trust strategies for Maryland HNW families

Credit shelter / bypass trust (essential for married couples)

The bypass trust is the foundational Maryland estate planning tool for married couples with estates above $5M per person. At the first spouse's death, assets up to $5M are placed in the bypass trust (using the deceased spouse's Maryland exemption). The surviving spouse is typically the income beneficiary — with HEMS-standard access to principal — but the bypass trust assets are excluded from the survivor's taxable estate at the second death. All appreciation in the bypass trust also escapes estate tax.

For a $10M Maryland couple where the first spouse dies with $5M in individually titled assets: the bypass trust shelters $5M, the survivor retains their own $5M. Bypass trust grows to $9M over the next 15 years. At second death, the survivor's estate (their original $5M + growth) may trigger some Maryland estate tax — but the $9M+ bypass trust is entirely excluded. Compare to no planning: $10M passes outright to survivor, grows to $19M+, and the entire estate above $5M is taxable at rates up to 16%.

SLAT (Spousal Lifetime Access Trust)

A SLAT removes assets from the grantor's Maryland taxable estate while the grantor's spouse retains HEMS access as beneficiary. For Maryland estates heading above $10M per person, a SLAT funded with $2M–$5M today removes that asset and all future appreciation permanently. The gift is tracked against the federal $15M exemption (and requires a Form 709 federal gift tax return), but Maryland has no corresponding state gift tax tracking. The Maryland effect is clean: the SLAT removes the asset from the Maryland taxable estate at the moment of funding. See: SLAT guide and common pitfalls.

GRAT (Grantor Retained Annuity Trust)

A zeroed-out GRAT transfers appreciation above the §7520 hurdle rate (5.00% as of the current period per IRS Rev. Rul. 2026-9) outside the Maryland estate at near-zero gift-tax cost. For Maryland families with concentrated stock, PE co-investments, or closely-held business interests anticipated to grow well above 5%/year, a GRAT is highly efficient: the remainder transferred to heirs uses no lifetime exemption and removes appreciation from the Maryland taxable estate. See: GRAT calculator.

IDGT installment sale

An intentionally defective grantor trust (IDGT) installment sale is particularly valuable for Maryland business owners with closely-held interests. The business is sold to the IDGT at fair market value in exchange for a promissory note at the applicable federal rate (AFR: mid-term ~4.08% for May 2026). Because the IDGT is a grantor trust, the sale is not a taxable event (Rev. Rul. 85-13). Only the seed gift (typically 10% of the note face) is a reportable gift. All appreciation above the AFR interest rate passes to beneficiaries outside the Maryland estate. See: IDGT installment sale guide and calculator.

Family limited partnership / LLC (FLP)

Maryland business owners and real estate investors can use an FLP or family LLC to apply minority interest and lack-of-marketability discounts (typically 20–40% combined) to the taxable value of assets, reducing the Maryland estate tax base. The FLP must have a genuine business purpose — IRC §2036 estate inclusion risk is real if the FLP is a pure tax device. See: FLP and valuation discount guide.

Case study: Potomac couple, $12M estate

Robert and Ellen are Potomac residents, ages 62 and 59. Robert is a federal contractor executive with $8M in company stock, a brokerage account, and a rental property portfolio. Ellen has $4M in IRAs, a small business interest (digital marketing firm, valued at $1M), and inherited brokerage assets. Combined estate: $12M. They have three adult children and two grandchildren. No advanced planning in place.

Problem without planning: At Robert's death, all assets pass to Ellen under the marital deduction — zero Maryland or federal estate tax. At Ellen's death, the estate has grown to $17M (growth on business interests and real estate). Maryland estate tax on $17M (single filer): approximately $1.7M. Federal estate tax: $0 (under $15M threshold). Total avoidable state tax: $1.7M.

Planning solution:

• Asset retitling: Shift $4M of jointly titled assets into Robert's individual name to reach $8M individually titled. This enables bypass trust funding at his death.
• Bypass trust at Robert's death: $5M of Robert's $8M funds the bypass trust (uses his MD exemption). Ellen receives $3M outright (marital deduction). Bypass trust excluded from Ellen's estate — all appreciation thereafter is MD-tax-free.
• Portability election: File MET-1 to preserve Robert's remaining $0 unused MD exemption (fully used by bypass trust). Also preserves any federal DSUE if applicable.
• SLAT: Robert and Ellen each fund a SLAT with $2M (staggered by 6 months, different assets). $4M leaves both estates now. Future growth on $4M excluded from MD estate permanently.
• Annual gifting: $38,000/year × 5 recipients (3 children + 2 grandchildren) = $190,000/year. Over 10 years: $1.9M removed from the MD estate.
• IRA beneficiary update: Ellen's $4M IRA designates children as direct beneficiaries (with see-through trust provisions) — IRAs pass outside probate and outside the Maryland estate entirely via beneficiary designation.

Result: Maryland estate tax exposure drops from ~$1.7M to near zero. Robert and Ellen retain full access to assets (SLAT beneficiaries and bypass trust income beneficiaries). The combination of bypass trust + SLAT + annual gifting + IRA pass-through captures the $1.7M opportunity created by the $5M–$15M gap between Maryland's exemption and the federal threshold.

6 Maryland estate planning mistakes that cost families the most

1. Assuming no federal estate tax means no estate planning urgency. With the federal exemption at $15M (OBBBA, July 2025), many Maryland families correctly observe that they owe nothing federally. But Maryland's $5M exemption is not connected to the federal threshold. A $10M Maryland couple owes approximately $0 federally and approximately $400,000+ to Maryland at the second death — if they don't plan. The federal clarity creates a false sense of security about state exposure.
2. Not funding a bypass trust at the first death. Maryland has portability, but portability locks in a fixed dollar amount and provides no growth-exclusion benefit. If assets grow after the first death, the DSUE amount doesn't grow with them. A bypass trust excludes both the initial funding and all future appreciation permanently. For estates expected to grow, the bypass trust saves substantially more over time — and it protects assets from the surviving spouse's creditors in a way that portability cannot.
3. Missing the MET-1 portability deadline. Even when families intend to elect portability, they miss the filing window. Maryland requires Form MET-1 within 9 months of death (extendable) for regular estate tax returns, and within 2 years for portability-only filings. The deceased spouse's unused $5M Maryland exemption is permanently forfeited if the deadline passes without a filing — even if the estate owed zero tax. This is the same trap as the federal portability election (Form 706), but with Maryland-specific deadlines.²
4. Leaving assets to non-exempt heirs without inheritance tax planning. The Maryland inheritance tax at 10% flat applies to nieces, nephews, cousins, and unrelated individuals — regardless of estate size. A Maryland resident who wants to leave $1M to a favorite nephew owes $100,000 in inheritance tax that could be avoided or deferred with proper planning (lifetime gifting to the nephew removes the asset from the estate and avoids the inheritance tax at death; alternatively, a bequest structured through a charitable organization followed by a charitable bequest to the family avoids the tax while supporting the family's charitable goals).
5. Titling everything as joint tenancy with right of survivorship. JTWROS assets pass automatically to the surviving spouse — which prevents the deceased spouse's $5M Maryland exemption from being used in a bypass trust. The bypass trust can only receive individually titled assets. For a $10M Maryland couple with everything jointly titled, the surviving spouse inherits $10M outright, their combined Maryland exemption remains $5M (not $10M), and the estate is over-exposed. Retitling to create individually titled shares for each spouse — ideally at least several years before death — is essential.
6. Not maximizing annual gifting over time. Maryland has no state gift tax and no lookback period. Annual exclusion gifts ($19K/donee, 2026) are the cleanest, simplest tool available: no MD filing, no reduction in the $5M MD exemption, and assets permanently removed from the Maryland taxable estate. A $304,000/year program removes $4.5M over 15 years — enough to push many $8M–$12M Maryland estates below the planning threshold. The mistake is never starting: families delay the conversation until they "get around to it," and lose years of compounding removal that can't be recaptured.