Who Owes Maryland's 10% Inheritance Tax and What Planning Options Protect Non-Lineal Heirs?
Last reviewed: July 2026
The Maryland inheritance tax is a flat 10% tax on property passing to certain heirs at death, and it falls hardest on people who are not in your direct family line. According to the Comptroller of Maryland, spouses, children, grandchildren, parents, and siblings pay nothing. But a niece, nephew, unmarried partner, or close friend who inherits from you owes 10% of what they receive. Maryland is one of only a handful of states that still levies this tax, and the planning to avoid it has to happen while you are alive.
Key Takeaways
- Maryland charges a flat 10% inheritance tax on property passing to non-lineal heirs like nieces, nephews, and unmarried partners.
- Lineal heirs (spouses, children, grandchildren, parents, siblings) and registered domestic partners are fully exempt from the tax.
- The tax applies on top of Maryland's separate estate tax, which has a $5 million exemption in 2026.
- Irrevocable trusts, beneficiary-designated accounts, and life insurance can each reduce or eliminate the inheritance tax bill.
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 planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff sees the same surprise every year: a client who plans to leave assets to a beloved niece never realizes the state will skim 10% off the top before she sees a dime.
What Is the Maryland Inheritance Tax and Who Pays It?
The Maryland inheritance tax is a 10% tax assessed on the value of property a person receives from a deceased individual, based on the relationship between the beneficiary and the decedent. It is separate from the Maryland estate tax. The estate tax is paid by the estate before distribution; the inheritance tax is tied to who receives the money.
Here is the part that catches Harford County families off guard. The tax has nothing to do with how large the estate is. A $30,000 bequest to a friend triggers the same 10% rate as a $3 million one. The Comptroller of Maryland confirms there is no minimum estate size that exempts a non-lineal heir.
Jeff Judge often tells clients in Forest Hill that the inheritance tax is the most overlooked line item in an estate plan. People focus on the federal estate tax, which only touches estates above $15 million in 2026, and they completely miss the 10% bite that hits a middle-class niece.
Who Is Exempt From the Maryland Inheritance Tax?
Maryland exempts a broad set of close relatives from the inheritance tax. If you fall into one of these categories, you owe nothing on what you inherit from a Maryland resident.
Exempt heirs include:
- A surviving spouse
- Children, stepchildren, and their descendants (grandchildren, great-grandchildren)
- Parents and grandparents
- Siblings
- Sons-in-law and daughters-in-law
- A registered domestic partner (in limited circumstances involving a primary residence)
- Corporations, partnerships, or LLCs whose owners are all exempt individuals
Who is not exempt, and therefore pays the full 10%:
- Nieces and nephews
- Aunts and uncles
- Cousins
- Unmarried partners (without a registered domestic partnership)
- Friends, neighbors, and caregivers
- Anyone with no blood or legal relationship to the decedent
This is where planning for non-lineal heirs in Maryland becomes real money. A childless widow in Bel Air who wants her estate to go to two nieces and a longtime companion is staring at a 10% tax on nearly everything she leaves them.
How to Protect Non-Lineal Heirs From the 10% Tax: A Step-by-Step Approach
You cannot wave away the inheritance tax after death. The protection has to be built while the owner is living. Here is how Jeff and the Chesapeake team walk clients through it.
Step 1: Identify every non-lineal beneficiary in your plan. Pull your will, your trust, and your beneficiary forms. Mark every person who is not a spouse, child, grandchild, parent, or sibling. Those are your exposed heirs.
Step 2: Calculate the actual tax exposure. Multiply the amount each non-lineal heir is set to receive by 10%. A $400,000 bequest to a niece costs her $40,000 in Maryland inheritance tax. Seeing the number usually changes the conversation.
Step 3: Consider an irrevocable trust funded during your lifetime. Assets that pass through certain properly structured irrevocable trusts may fall outside the inheritance tax depending on how and when they were funded. This is technical, and it requires an estate attorney to draft correctly.
Step 4: Use beneficiary designations and joint ownership strategically. Certain jointly held property and accounts with the right titling can reduce what passes through probate and is subject to the tax. The rules are specific, so titling has to be reviewed deliberately.
Step 5: Build in life insurance to cover the tax. This is the cleanest fix in many cases. Maryland does not tax life insurance proceeds paid to a named beneficiary. A policy owned correctly can deliver tax-free dollars to a niece that effectively replace what the inheritance tax would have taken.
Step 6: Have an estate attorney implement the structure. Chesapeake Financial Planners coordinates the financial side, but trust drafting and titling changes must run through a Maryland estate attorney. Doing this yourself with online forms is how families end up with a plan that does not hold up.
How do Maryland's estate tax and inheritance tax work together, and how do you plan around both?
This sequence mirrors 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.
Why This Matters for Families in Harford County and Maryland
Maryland is unusual. It is the only state in the country that imposes both an estate tax and an inheritance tax, according to the Tax Foundation. That double exposure means estate planning here demands more attention than it does for a family in a no-tax state.
Our office in Forest Hill serves a lot of clients in exactly the situation this tax was written for. Childless couples, second marriages, people who want to leave something to a caregiver or a godchild. These are the Harford County families who get blindsided if no one flags the 10%. Jeff has watched a single life insurance policy, set up years in advance, save a client's nephew tens of thousands of dollars.
The Maryland estate tax adds another layer. The state exemption sits at $5 million in 2026, far below the federal threshold, so Maryland estates that owe nothing federally can still owe state estate tax on top of any inheritance tax.
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Frequently Asked Questions
Does Maryland tax inheritances left to nieces and nephews?
Yes. Nieces and nephews are non-lineal heirs under Maryland law, so any property they inherit from a Maryland decedent is subject to the flat 10% inheritance tax. The tax applies regardless of the size of the inheritance or the total estate, with no minimum exemption amount.
What is the Maryland inheritance tax rate in 2026?
The Maryland inheritance tax rate is a flat 10% on property passing to non-lineal heirs, according to the Comptroller of Maryland. There is no graduated scale. Whether a non-lineal heir inherits $5,000 or $500,000, the same 10% rate applies to the full amount received.
Are unmarried partners exempt from Maryland inheritance tax?
Generally no. An unmarried partner is treated as a non-lineal heir and owes the 10% inheritance tax, unless a registered domestic partnership exists and specific conditions are met involving a jointly owned primary residence. Without that legal status, partners in Harford County face the full tax on what they inherit.
Can a trust avoid the Maryland inheritance tax?
A properly structured irrevocable trust, funded during your lifetime by a Maryland estate attorney, may move assets outside the reach of the inheritance tax depending on how the trust is designed. The rules are technical and fact-specific, so the structure must be drafted and implemented with professional legal guidance to hold up.
Does Maryland tax life insurance paid to a beneficiary?
No. Life insurance proceeds paid directly to a named beneficiary are not subject to the Maryland inheritance tax. This makes life insurance one of the most effective tools to protect non-lineal heirs, because a policy can deliver tax-free dollars that offset what the 10% tax would otherwise take from the inheritance.
Is the Maryland inheritance tax separate from the estate tax?
Yes. Maryland imposes two distinct death taxes. The estate tax is paid by the estate before assets are distributed and applies to estates above the $5 million state exemption in 2026. The inheritance tax is paid based on who receives the property and applies to non-lineal heirs at a flat 10% rate.
Ready to put a plan around protecting the people you want to provide for? Jeff Judge and the Chesapeake team serve families across Harford County, Bel Air, and the Baltimore metro from our Forest Hill office. The Maryland inheritance tax is fixable, but only while you are living to fix it. Schedule a free fit call at chesapeakefp.com to walk through your situation.
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.
