Maryland Inheritance Tax 2026: Who Pays, What's Exempt, and the Dual-Tax Trap

Who Pays Maryland Inheritance Tax?

Maryland's inheritance tax is paid by the recipient, based on their relationship to the person who died. The relationship categories are either fully exempt or subject to the flat 10% rate — there is no middle tier.

The sibling exemption is meaningful. In New Jersey, siblings pay 11–16%. In Pennsylvania, siblings pay 12%. In Maryland, siblings pay nothing. If you are inheriting from a sibling who lived in Maryland, you owe no Maryland inheritance tax regardless of the amount.

In-laws are the common trap: a brother-in-law or sister-in-law is taxable at 10% even though a biological sibling would be exempt. The exemption runs through blood, not marriage.¹

What Assets Are Subject to Maryland Inheritance Tax?

Maryland inheritance tax applies to property located in Maryland that passes from a Maryland-resident decedent to a non-exempt beneficiary. If the decedent lived outside Maryland, the inheritance tax still applies to real estate and tangible personal property physically located within the state.¹

Retirement Accounts and IRAs

Unlike Pennsylvania, Maryland does not have a special age-based rule for retirement accounts. IRAs, 401(k)s, and other designated beneficiary accounts that pass directly to a named beneficiary generally bypass the probate estate and are not subject to Maryland inheritance tax. However, retirement accounts payable to the estate — rather than to a named beneficiary — are included in the probate estate and become taxable.

This creates a planning opportunity: keeping beneficiary designations current on all retirement accounts keeps those assets out of the Maryland inheritance tax calculation entirely.

Life Insurance

Life insurance proceeds paid to a named beneficiary are generally exempt from Maryland inheritance tax. Proceeds paid to the estate are included in the probate estate and taxable if they pass to a non-exempt beneficiary.

Real Estate

Inherited Maryland real estate is subject to the inheritance tax at its date-of-death fair market value if passing to a non-exempt beneficiary. The federal step-up in basis under IRC §1014 resets the cost basis for capital gains purposes — but the step-up does not reduce the Maryland inheritance tax owed. Both apply independently.

Jointly-Owned Property

For jointly-owned property between non-spouses, Maryland taxes the decedent's fractional share. For property owned 50/50 between a decedent and a non-exempt beneficiary, 50% of the date-of-death value is subject to the 10% tax.

Worked Examples

Example 1: Aunt Inheriting from a Nephew

A Maryland resident leaves his aunt a $400,000 brokerage account and a $200,000 IRA (with the aunt named as beneficiary). Maryland inheritance tax:

If paid within 3 months of death: 5% discount → $38,000. The IRA will also generate federal income tax on every distribution over the 10-year window — separate from the inheritance tax calculation.

Example 2: Sibling Inheriting — No Tax

A Maryland resident leaves her brother $800,000 in a brokerage account and 50% of a $600,000 house. Maryland inheritance tax: $0. Siblings are fully exempt with no threshold. The same inheritance in New Jersey would trigger Class C inheritance tax of 11–16% on the excess over $25,000 — potentially tens of thousands of dollars.

Example 3: Close Friend — Full Tax

A Maryland resident leaves $300,000 to a close friend. Maryland inheritance tax: $300,000 × 10% = $30,000. With 5% early-payment discount: $28,500. The friend also owes no federal estate tax (the estate is well under $15M) and would get a step-up in basis on any capital assets inherited — but still owes $30,000 in state inheritance tax.

The Maryland Estate Tax: What Makes Maryland Unique

Maryland is the only state in the country that levies both an inheritance tax and a separate state estate tax. Most people who know about the inheritance tax are not aware of the estate tax — and the combination can meaningfully increase the total tax burden on larger estates.

Maryland Estate Tax: Key Facts

• Who pays it: The estate, not the beneficiary. The estate pays the estate tax before assets are distributed.
• Exemption: $5,000,000 per individual. Estates at or below $5M owe no Maryland estate tax.
• Rate: Graduated, from low single digits to a top marginal rate of 16% on the largest portions.
• Portability for married couples: Maryland estate tax is portable. A surviving spouse can elect to use the deceased spouse's unused exemption (DSUE), protecting up to $10M total for a married couple.
• Decoupled from federal: The federal estate tax exemption is $15M per person in 2026 (made permanent by the One Big Beautiful Bill Act, July 2025). Maryland uses its own $5M threshold — so estates between $5M and $15M owe Maryland estate tax but no federal estate tax.²
• Filing deadline: 9 months from date of death. Extension available, but tax is due within 9 months.

Who Is Most Exposed to the Dual Tax?

The dual tax hits hardest when all three conditions are present:

1. The estate is between $5M and $15M (above MD threshold, below federal threshold)
2. The decedent was unmarried (or the surviving spouse already died, using their portability credit)
3. A meaningful portion of the estate passes to non-exempt beneficiaries (nieces, nephews, friends)

In that scenario, the estate pays Maryland estate tax (potentially 10–16% effective rate on the excess), and then each non-exempt beneficiary also pays 10% inheritance tax on their share — effectively stacking the two levies.

For exempt beneficiaries (children, siblings), only the estate tax applies — the estate pays it before distribution, reducing the inheritance amount, but no additional inheritance tax is owed by the beneficiary.

The Early-Payment Discount

Maryland offers a discount on inheritance tax if paid before the 9-month filing deadline:

• 5% discount if paid within 3 months of the date of death
• 2.5% discount if paid within 6 months of the date of death
• No discount if paid after 6 months (and penalties apply after 9 months)

On a $40,000 inheritance tax bill, paying within 3 months saves $2,000. More importantly, acting quickly prompts the executor to move the estate administration forward, which benefits all beneficiaries by releasing assets sooner.

Filing Maryland Inheritance Tax: How It Works

Maryland inheritance tax is administered by the Register of Wills in the county where the decedent lived (or where Maryland property is located for non-residents). Unlike most tax returns, the Maryland inheritance tax is embedded in the probate administration process — the executor calculates and pays the tax as part of estate settlement.¹

Key filing mechanics:

• Deadline: 9 months from the date of death
• Late penalty: $1,000 flat penalty, plus interest on unpaid tax
• Additional penalties: If unpaid after 30 days from invoice: 10% penalty. After 60 and 90 days: additional interest. After 90 days: referred to the Maryland Central Collection Unit.
• Who handles it: The executor or personal representative of the estate. If assets passed outside the estate (via beneficiary designation), a beneficiary may need to file directly.

The Maryland estate tax is filed separately using the Maryland Estate Tax Return (Form MET-1) with the Comptroller of Maryland, also within 9 months of death.²

Planning Strategies for Maryland Beneficiaries and Estates

1. Lifetime Gifts

Maryland has no state gift tax and no lookback period on pre-death gifts. Assets given away during the decedent's lifetime are not subject to Maryland inheritance tax. For a Maryland resident with nieces and nephews who would pay 10%, systematic lifetime gifting eliminates inheritance tax on transferred amounts. The federal annual gift exclusion ($19,000 per recipient in 2026) allows tax-free transfers without any gift tax implications.³

2. Keep Retirement Account Beneficiary Designations Current

IRAs and 401(k)s paid to a named beneficiary bypass the Maryland probate estate and are not subject to Maryland inheritance tax. Ensuring beneficiary designations are current and do not name "the estate" as beneficiary is one of the simplest inheritance tax reduction strategies available. This also avoids the inherited IRA complications that arise when an estate is named as beneficiary.

3. Life Insurance as a Tax-Efficient Transfer Tool

Life insurance paid to a named beneficiary is exempt from Maryland inheritance tax. A person who wants to leave assets to nieces, nephews, or friends can use life insurance to pass those amounts free of the 10% state inheritance tax — the beneficiary receives the death benefit income-tax-free under IRC §101(a) and without Maryland inheritance tax. The trade-off is the cost of premiums, but for large intended transfers the math often favors insurance.

4. Estate Tax Planning for $5M–$15M Estates

For Maryland residents with estates likely to exceed $5M, the state estate tax creates planning opportunities that don't exist for residents of states with no estate tax:

• Use portability — a surviving spouse should file an estate tax return electing portability of the deceased spouse's unused exemption even if no estate tax is owed at the first death. This protects up to $10M total.
• Credit shelter trust (bypass trust) — for estates over $10M (or where portability is not used), a bypass trust funded at the first spouse's death can protect up to an additional $5M from Maryland estate tax at the second death.
• Charitable giving — bequests to charity reduce the taxable estate for both Maryland estate tax and federal estate tax purposes.
• Annual gifting — systematic lifetime gifting reduces the estate below the $5M threshold over time; gifts are not subject to Maryland estate tax or gift tax.

5. Consider State of Domicile for Large Estates

Maryland inheritance tax and estate tax apply based on where the decedent was domiciled. For Maryland residents with significant assets and estates likely to exceed $5M, establishing domicile in a state with no estate tax (such as Virginia, Florida, or Texas) before death eliminates both Maryland taxes — though this requires a genuine change of primary residence and intention. This is a significant life decision, not a casual planning maneuver.

Maryland vs. the Other Four Inheritance Tax States

Maryland stands out in two ways: it is the most generous to siblings (exempt, like Kentucky) and the most complex for large estates (the only state with both taxes). For complete rate tables and cross-state comparison, see the inheritance tax by state guide.

When a Specialist Advisor Helps

Maryland's dual-tax structure creates planning decisions that benefit from professional analysis:

• Quantifying the combined Maryland estate tax plus inheritance tax exposure for estates above $5M
• Evaluating whether a credit shelter trust or portability election makes sense at the first spouse's death
• Structuring beneficiary designations to keep retirement accounts out of the probate estate and inheritance tax base
• Analyzing lifetime gifting vs. life insurance strategies for transferring assets to nieces, nephews, or non-exempt beneficiaries
• Coordinating with the estate attorney on the Register of Wills filing and early-payment discount deadline

How to choose a financial advisor for inheritance planning →

Sources

1. Maryland Register of Wills — Inheritance Tax. Official overview of who pays, exemptions, and filing process. Values verified June 2026.
2. Maryland Comptroller — Estate and Inheritance Tax. Official guidance on the Maryland estate tax, exemption amount, and filing requirements.
3. Tax Foundation — Estate and Inheritance Taxes by State, 2025. Cross-state comparison of exemptions, rates, and tax structures.
4. Nolo — Maryland Inheritance Tax: Rates, Exemptions, and Who Pays. Plain-language explanation of the beneficiary categories and exemption rules.

Tax rates and rules verified as of June 2026 against Maryland Comptroller, Register of Wills, and Tax Foundation sources. Maryland inheritance tax rates have not changed in recent years. The OBBBA (July 2025) affected the federal estate tax exemption ($15M) but did not modify Maryland inheritance tax or Maryland estate tax. State law can change; confirm current rules with a Maryland estate attorney before making planning decisions.