What the rule says
Maryland is unique among American states in imposing both a state estate tax and a state inheritance tax. The combined framework produces estate planning consequences that no other state's framework matches:
Maryland estate tax (Md. Code Ann., Tax-Gen. § 7-309)
- Exclusion threshold: Approximately $5 million per individual (Maryland sets its own threshold; not federally conformed) - Top rate: 16% - Portability: Maryland does NOT recognize federal portability — unused exclusion cannot be transferred to surviving spouse - Applies to: Maryland residents at death, plus non-residents with Maryland real or tangible property
Maryland inheritance tax (Md. Code Ann., Tax-Gen. § 7-201 et seq.)
- Rate: 10% on transfers to non-spouse non-lineal beneficiaries (siblings, friends, distant relatives, non-spouse non-lineal recipients) - Exempt: Spouse, children, grandchildren, parents, grandparents, siblings (when the brother/sister was the recipient — see specific exemptions), charitable beneficiaries, and certain other categories - Tax base: Includes most non-probate transfers along with probate property - Applied per recipient: Like Pennsylvania and New Jersey, the tax is on the recipient based on relationship
How the dual framework works in practice
A Maryland decedent's estate may face both taxes:
- Estate tax: Applied to the estate as a whole, on amounts exceeding the $5 million threshold. - Inheritance tax: Applied to non-spouse non-lineal beneficiaries' specific receipts at 10%.
The combined framework can produce substantial total tax:
Example: Maryland decedent with $7 million estate, leaving $1 million to a friend (non-lineal) and $6 million to children.
- Estate tax base: $7 million − $5 million exclusion = $2 million subject to estate tax - Estate tax (top rate 16%, less progressive lower rates): approximately $200,000-$300,000 - Inheritance tax on $1 million to friend (10%): $100,000 - Inheritance tax on $6 million to children: $0 (children are exempt as lineal descendants) - Total Maryland tax: approximately $300,000-$400,000
By comparison: - Tennessee or Texas decedent (no state taxes): $0 state tax - New York decedent ($7M estate just below NY $7.16M threshold): $0 state tax - Massachusetts decedent ($7M estate above $2M MA threshold): Approximately $400,000-$500,000 estate tax (no inheritance tax)
The combined Maryland framework produces tax exposure on smaller estates than New York and broader exposure to non-spouse non-lineal transfers than Massachusetts.
Coordination challenges
The dual framework creates planning complications:
Charitable bequests reduce both taxes
A charitable bequest reduces the estate tax base AND incurs no inheritance tax (charities are exempt). Charitable planning is particularly tax-efficient in Maryland.
Lineal descendants only avoid inheritance tax
Unlike Pennsylvania (where lineal descendants pay 4.5% inheritance tax), Maryland exempts lineal descendants from inheritance tax. Bequests to children, grandchildren, parents, and grandparents face 0% inheritance tax — but estate tax still applies above the $5M threshold.
Non-lineal relatives face the 10% rate
Siblings, nieces, nephews, in-laws, friends, and other non-lineal relatives pay 10% Maryland inheritance tax on their receipts (with limited specific exemptions). For a sibling receiving $500,000, the inheritance tax is $50,000.
Stepchildren
Maryland's inheritance tax exempts stepchildren of the decedent (different from Pennsylvania, which charges 15%). Stepchildren are treated similarly to biological children for Maryland inheritance tax purposes.
No portability
Maryland does NOT recognize federal portability. A married couple cannot pool their $5M state exclusions. This is similar to Illinois and Massachusetts but with the additional inheritance tax overlay.
What this means in practice
For Maryland residents engaged in estate planning:
- Bypass trust planning is essential for couples above $5 million. Without portability, the first-deceased spouse's $5M exclusion is wasted unless captured through a bypass trust. - Charitable planning is particularly tax-efficient. Charities reduce estate tax base and incur no inheritance tax. - Non-lineal recipients face inheritance tax. Bequests to siblings, friends, or distant relatives need separate consideration. - Lineal descendants escape inheritance tax but estate tax still applies. - Out-of-state real property considerations. Maryland's tax framework applies to Maryland residents and to Maryland real property of non-residents.
What you can do about it
For high-net-worth Maryland residents:
- Calculate combined tax exposure. Both estate and inheritance tax must be modeled. - Use bypass trust planning for married couples to capture both spouses' exclusions. - Use charitable bequests strategically. - Account for inheritance tax in non-lineal bequests. - Consider domicile change. Florida, Texas, Tennessee (no state death tax) eliminate Maryland exposure if domicile is properly established. - Engage a Maryland estate tax advisor. The combined framework is technical.
For high-net-worth families with Maryland real estate:
- Maryland real property remains subject to MD tax even for non-resident decedents. - Consider whether to retain Maryland real property at higher net worth thresholds.
Who this affects most
Maryland's dual tax framework is most consequential for:
- High-net-worth Maryland residents with estates above $5 million - Married Maryland couples whose combined assets exceed $5 million (no portability means careful planning required) - Maryland residents with bequests to non-lineal recipients (siblings, friends, distant relatives) - Estate planners coordinating Maryland-specific exposure with federal estate tax planning - Maryland residents considering domicile change for tax efficiency
Maryland is the only state with this combined framework. Estate planning that ignores either component will miss substantial tax exposure. The combined framework is among the most aggressive state-level death tax structures in the country.