Maryland Estate Tax 2026: Why Does Maryland Have Both an Estate and Inheritance Tax?
Last reviewed: July 2026
The Maryland estate tax 2026 threshold sits at $5 million, and the rate on the amount above it climbs to a top rate of 16%. Maryland is also the only state in the country that charges a separate inheritance tax on top of that. The combination matters because the federal exemption is far higher, at $15 million per person for 2026, so a Maryland family can owe state estate tax while owing nothing to the IRS. If you live in Forest Hill, Bel Air, or anywhere in Harford County and your estate is worth more than $5 million, this is your tax problem, not a theoretical one.
On This Page
- Key Takeaways
- What is the Maryland estate tax in 2026?
- How does the Maryland inheritance tax work?
- Why is Maryland the only state with both an estate tax and an inheritance tax?
- How does Maryland's $5 million exemption compare to the $15 million federal exemption?
- Who actually pays Maryland's estate and inheritance taxes?
- How do you plan around the Maryland estate tax 2026 rules?
- Frequently Asked Questions
- Ready to plan around the Maryland estate tax?
- Disclosures
Key Takeaways
- Maryland taxes estates above a $5 million exemption at rates up to 16%, and that exemption has stayed frozen for years.
- The federal estate tax exemption rose to $15 million per person for 2026, leaving a wide band that Maryland still taxes.
- Maryland is the only state that charges both a state estate tax and a separate inheritance tax.
- Maryland's inheritance tax is a flat 10% on assets left to non-lineal heirs; spouses, children, parents, and siblings are exempt.
- Tools like spousal portability, lifetime gifting, and trusts can lower what an estate owes, but they take years to set up well.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate estate and inheritance tax planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff's take: the families who get hurt by the Maryland estate tax are usually the ones who assumed the big federal number was the only one that mattered.
What is the Maryland estate tax in 2026?
The Maryland estate tax is a tax on the total value of everything you own at death once that value crosses the state exemption. For 2026, that exemption is $5 million per person, and the tax on the amount above it climbs to a top rate of 16%, according to the Comptroller of Maryland. The estate, not the heirs, pays this tax, and the personal representative files the Maryland estate tax return before assets are distributed.
Two details trip people up. First, the $5 million figure is not indexed for inflation, so it does not rise each year the way the federal number does. It has held at $5 million for years, which means more estates drift over the line as home values and retirement accounts grow. Second, "taxable estate" includes assets a lot of people forget to count: the death benefit of life insurance you own, the full value of your home, retirement accounts, and your share of a business.
How much is the Maryland estate tax exemption in 2026?
The Maryland estate tax exemption in 2026 is $5 million per individual. Maryland also allows spousal portability, which lets a surviving spouse claim a deceased spouse's unused exemption with a timely election. Used correctly, portability can let a married couple shield up to $10 million from the Maryland estate tax.
That election is not automatic; it depends on filing a Maryland estate tax return for the first spouse even when no tax is due. Miss the filing and you can forfeit the second exemption entirely.
What is estate tax portability, and how do I claim my spouse's unused exemption?
How does the Maryland inheritance tax work?
Maryland's inheritance tax is separate from the estate tax and works on a completely different principle. Instead of taxing the size of the estate, it taxes who receives the money. The rate is a flat 10% on property passing to a non-lineal heir, per the Maryland Register of Wills. It is collected by the Register of Wills in the county where the estate is probated, including here in Harford County.
The good news for most families is the list of people who are exempt. Direct or lineal heirs pay nothing. That covers a spouse, child, grandchild, great-grandchild, stepchild, parent, and grandparent. Siblings have been exempt since July 1, 2000, and a surviving registered domestic partner has been exempt since October 1, 2023. There is also a small carve-out: property passing to any one person that totals $1,000 or less is exempt.
So who actually pays? The 10% lands on the people outside that lineal circle. Nieces, nephews, cousins, friends, and unmarried partners who are not registered all fall into the taxable group.
Who is exempt from the Maryland inheritance tax?
Spouses, children, grandchildren, parents, grandparents, stepchildren, siblings, and registered domestic partners are all exempt from the Maryland inheritance tax. The 10% rate applies to everyone else, most commonly nieces, nephews, cousins, and friends.
This is the single most overlooked piece of Maryland estate planning Jeff Judge sees. A client wants to leave a meaningful gift to a favorite niece or a longtime partner, and nobody warns them that 10% comes off the top before that person receives a dime.
What do Maryland residents need to know about estate planning?
Why is Maryland the only state with both an estate tax and an inheritance tax?
Maryland is the only state that imposes both a state estate tax and an inheritance tax, a distinction confirmed by the Tax Foundation. The reason is history, not strategy. The inheritance tax is one of the oldest taxes in the state and predates the modern estate tax. When other states repealed one or the other over the decades, Maryland kept both on the books. Locals sometimes lump the two together as the Maryland death tax, but they are separate levies with different triggers.
That sounds like double taxation, and in a narrow sense it can be. But the two taxes are coordinated. Any inheritance tax paid to the Register of Wills is credited against the Maryland estate tax, so the same dollar is not fully taxed twice at the state level. In practice, a large estate that leaves assets to non-lineal heirs may pay inheritance tax first, then owe estate tax reduced by that amount.
The takeaway is that Maryland gives you two separate tripwires. The estate tax is triggered by size. The inheritance tax is triggered by relationship. You can dodge one and still land on the other.
Do Maryland families pay both taxes on the same assets?
Most Maryland families do not pay both taxes on the same assets, because the inheritance tax paid is credited against the estate tax owed. The two taxes interact rather than stack at full value.
A modest estate left entirely to children pays neither, since it sits under $5 million and goes to exempt lineal heirs. A large estate split between children and a niece could trigger inheritance tax on the niece's share and estate tax on the overall value, with a credit reducing the overlap.
How does Maryland's $5 million exemption compare to the $15 million federal exemption?
Maryland's $5 million estate tax exemption is one third of the federal exemption, and that gap is the heart of the planning problem in 2026. On the federal side, the IRS confirmed a sharp increase. In its 2026 inflation adjustments, the agency states:
"Estates of decedents who die during 2026 have a basic exclusion amount of $15,000,000, up from a total of $13,990,000 for estates of decedents who died in 2025."
That change was made permanent under the law the IRS describes in its estate and gift tax guidance.
Maryland did not follow. Its exemption stayed at $5 million and is not indexed for inflation. The result is a $10 million band, between $5 million and $15 million, where you owe no federal estate tax but can owe a meaningful Maryland estate tax.
| Feature | Maryland estate tax (2026) | Federal estate tax (2026) |
|---|---|---|
| Exemption per person | $5,000,000 | $15,000,000 |
| Top tax rate | 16% | 40% |
| Indexed for inflation | No | Yes |
| Spousal portability | Yes | Yes |
| Separate inheritance tax | Yes, a flat 10% | None |
What happens to estates between $5 million and $15 million?
Estates between $5 million and $15 million owe no federal estate tax in 2026 but can owe Maryland estate tax at rates up to 16%. This is the zone where most affected Harford County families actually live.
An estate of $8 million, for example, sits comfortably under the $15 million federal line, so the IRS collects nothing, while Maryland taxes roughly the $3 million above its $5 million exemption.
The federal headlines tell these families they are safe. Maryland's frozen exemption tells a different story.
What Do High Net Worth Families Need to Know About Estate Tax Planning in 2026?
Who actually pays Maryland's estate and inheritance taxes?
The people who pay the Maryland estate tax are owners of appreciated, illiquid wealth: business owners, farmers, longtime homeowners, and savers with large retirement and life insurance balances. You do not need to feel rich to be over $5 million. Add a paid-off house in the Baltimore metro, a retirement account built over a 40-year career, and a $1 million life insurance policy you own, and a single person can cross the line without ever holding much cash.
Business owners feel this most sharply. A family business or farm can be worth several million on paper while generating modest income. When the owner dies, the Maryland estate tax is due in cash within nine months, and the asset that triggered the bill cannot be spent to pay it. That liquidity mismatch is what forces families to sell land or borrow against a business at the worst possible moment.
On the inheritance tax side, the people who pay are non-lineal heirs. If your plan leaves money to a niece, a nephew, a cousin, a friend, or an unmarried partner, 10% of their share goes to the state before they receive it.
Are small business owners and farmers affected?
Small business owners and farmers in Maryland are among the most affected by the estate tax, because their wealth is locked in illiquid assets that still count toward the $5 million exemption.
Maryland does offer relief for qualifying agricultural property, capping the estate tax on that property at a lower effective rate, but the rules are specific and require careful documentation.
A working farm worth $7 million can generate a real Maryland estate tax bill even though the family has very little cash on hand.
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How do you plan around the Maryland estate tax 2026 rules?
Planning for the Maryland estate tax starts with an honest valuation of everything you own, including the assets people forget, then matching tools to the specific tripwire you face. Chesapeake Financial Planners is a fee-based financial planning firm in Forest Hill, Maryland that helps business owners, pre-retirees, and people navigating major financial transitions make data-driven decisions, and estate tax exposure is one of the most common reasons local families come in.
We work through this with the R.U.D.D.E.R. Method™, Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. For estate tax, the Review step is usually the eye-opener, because clients see the $5 million Maryland line for the first time and realize how close they are.
A few levers come up again and again. Spousal portability can preserve a second $5 million exemption, but only if the estate tax return is filed for the first spouse. Lifetime gifting can move assets and future growth out of your taxable estate. Trusts, including irrevocable life insurance trusts, can keep a policy's death benefit out of the Maryland calculation. Charitable strategies can reduce the taxable estate while supporting causes you care about. None of these are quick fixes, and most work best when set up years ahead. Jeff Judge notes: "The irrevocable life insurance trust is one of the most underused tools we see, because keeping a large death benefit outside the Maryland estate calculation can mean the difference between a taxable estate and one that clears the $5 million line cleanly."
What estate planning moves reduce Maryland estate tax?
The estate planning moves that reduce Maryland estate tax most often are spousal portability elections, annual and lifetime gifting, irrevocable trusts, and charitable giving structures. Each targets a different part of the problem, and the right mix depends on whether your exposure comes from size, illiquidity, or non-lineal heirs.
Jeff Judge often tells clients that the cheapest move is also the most boring one: file the return that preserves the first spouse's exemption, because skipping it can cost the family hundreds of thousands later.
How Does the Annual Gift Tax Exclusion Work?
Do I need a living trust or just a will in Maryland?
What is an ILIT, and how does it keep life insurance out of my estate?
How Does a Charitable Remainder Trust Work for High Net Worth Individuals?
Frequently Asked Questions
What is the Maryland estate tax exemption for 2026?
The Maryland estate tax exemption for 2026 is $5 million per person, and it is not indexed for inflation. Estates valued above that amount face a Maryland estate tax at rates up to 16%. Because the exemption has stayed frozen while asset values have risen, more Harford County families cross the threshold each year than did a decade ago.
Does Maryland really have both an estate tax and an inheritance tax?
Yes, Maryland is the only state in the country that imposes both a state estate tax and a separate inheritance tax. The estate tax is based on the total size of the estate above $5 million. The inheritance tax is a flat 10% based on the relationship of the person receiving the assets. Any inheritance tax paid is credited against the estate tax owed.
Who is exempt from the Maryland inheritance tax?
Spouses, children, grandchildren, great-grandchildren, stepchildren, parents, grandparents, siblings, and registered domestic partners are all exempt from the Maryland inheritance tax. The flat 10% rate applies to everyone else, including nieces, nephews, cousins, friends, and unmarried partners who are not registered. A small bequest of $1,000 or less to any one person is also exempt.
How much is the Maryland estate tax rate?
The Maryland estate tax rate climbs to a top rate of 16% on the value of a taxable estate above the $5 million exemption. It is not a flat 16% on the whole estate; the rate applies on a graduated basis to the amount over the exemption. The personal representative files the Maryland estate tax return and pays the tax from estate assets before heirs receive their shares.
Do I owe Maryland estate tax if I'm below the federal exemption?
Yes, you can owe Maryland estate tax even when you owe nothing federally. The federal exemption for 2026 is $15 million per person, while Maryland's is only $5 million. That creates a band between $5 million and $15 million where the IRS collects nothing but Maryland can tax the value above its lower exemption at up to 16%. Many Maryland families fall into exactly this gap.
Can a married couple in Maryland protect $10 million from estate tax?
Yes, a married couple can shield up to $10 million from the Maryland estate tax by using both spouses' $5 million exemptions through portability. The catch is that portability is not automatic. The estate must file a Maryland estate tax return when the first spouse dies, even if no tax is due, to preserve the unused exemption for the surviving spouse. Missing that filing can forfeit the second exemption.
How do I reduce or avoid the Maryland estate tax?
You reduce Maryland estate tax by lowering the value of your taxable estate and preserving every exemption available. Common tools include spousal portability, annual and lifetime gifting, irrevocable life insurance trusts, and charitable giving. The right combination depends on your assets and your heirs, and most strategies need years to work. An estate planning attorney and a financial planner should build the plan together.
Ready to plan around the Maryland estate tax?
The Maryland estate tax 2026 picture punishes the families who assume the federal exemption is the only number that counts. The $5 million state line, the frozen exemption, and the only-in-Maryland inheritance tax all reward people who plan early and quietly trap the ones who wait. Jeff Judge and the Chesapeake team serve families and business owners across Harford County and the Baltimore metro. Schedule a free fit call at chesapeakefp.com.
Want to go deeper? Our Busy Professional's Guide to Making Financial Progress walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
