If you live in Maryland, your estate could face not one, not two, but three separate layers of death-related taxation. Maryland holds the distinction of being the only state in the country that imposes both a state estate tax and a state inheritance tax, on top of the federal estate tax that applies nationwide.
Understanding how these taxes interact is essential for protecting your family’s financial future. With the federal estate tax exemption now permanently set at $15 million under the One Big Beautiful Bill Act and Maryland’s exemption holding at $5 million, the gap between state and federal thresholds has never been wider. That gap creates both risk and opportunity for Maryland families.
Here is what you need to know heading into 2026.
The Federal Estate Tax in 2026: A New Baseline
The federal estate tax landscape shifted significantly in 2025 when the One Big Beautiful Bill Act was signed into law. The legislation permanently raised the federal estate and gift tax exemption to $15 million per individual, or $30 million for married couples, beginning January 1, 2026. Starting in 2027, this amount will continue to be indexed for inflation.
This was a major departure from what many families had been preparing for. Under the original Tax Cuts and Jobs Act (TCJA) of 2017, the elevated exemption was set to sunset at the end of 2025, which would have dropped the federal exemption back to roughly $7 million per person. That sunset has now been eliminated.
For estates below $15 million, no federal estate tax is owed. For estates that exceed this threshold, the federal tax rate is 40% on the portion above the exemption.
What Portability Means for Married Couples
One important feature of the federal estate tax is portability. If one spouse dies without fully using their $15 million exemption, the unused portion can transfer to the surviving spouse. This effectively gives married couples a combined $30 million exemption, but only if the executor of the first spouse’s estate files a federal estate tax return (IRS Form 706) to elect portability. Missing this step is a costly and surprisingly common mistake.
The Maryland Estate Tax in 2026: A Much Lower Threshold
While the federal exemption sits at $15 million, Maryland’s estate tax exemption is $5 million per individual, or $10 million for married couples. This threshold has been in place since 2019 and is not indexed for inflation.
This means that a Maryland resident with an estate valued at $8 million would owe zero federal estate tax but would face a Maryland estate tax bill on the $3 million above the state threshold.
Maryland’s estate tax uses a graduated rate structure. Rates start at 0.8% and climb to a maximum of 16% on the taxable portion of the estate. The tax is calculated using a credit-based system tied to the federal state death tax credit, which means the effective rate depends on the total size of the estate.
The $10 Million Gap: Where Maryland Families Get Caught
The most important planning consideration for Maryland residents in 2026 is the $10 million gap between the state and federal exemptions. Estates worth between $5 million and $15 million are in a zone where no federal tax applies, but Maryland’s estate tax absolutely does.
Many families assume that because they are well under the federal threshold, they have nothing to worry about. That assumption can be expensive. When you factor in the value of your home, retirement accounts, life insurance policies, and investment portfolios, reaching the $5 million mark is more common than most people expect.
Maryland’s Inheritance Tax: The Third Layer
In addition to the estate tax, Maryland imposes a separate inheritance tax. This is a flat 10% tax on the value of property passed to certain beneficiaries.
The critical distinction is that the inheritance tax is based on who receives the assets, not on the total value of the estate. This means even a modest inheritance can be taxed if it goes to a non-exempt beneficiary.
Who Is Exempt from the Inheritance Tax?
The following beneficiaries are completely exempt from Maryland’s 10% inheritance tax:
- Spouses
- Parents and grandparents
- Children, stepchildren, and other lineal descendants
- Siblings
- Spouses of children or lineal descendants
If you leave assets to a niece, nephew, cousin, friend, unmarried partner, or any other non-lineal beneficiary, those assets will be subject to the 10% inheritance tax. This is an area where careful estate planning for new couples and blended families becomes particularly important.
How the Maryland Estate Tax and Inheritance Tax Interact
Here is where it gets complicated. If an estate owes both the Maryland estate tax and the Maryland inheritance tax, the estate receives a credit. The inheritance tax paid on property subject to both taxes is credited against the estate tax owed, so the same assets are not fully taxed twice.
However, this credit system does not eliminate the burden entirely. Depending on the size of the estate and the relationship of the beneficiaries, the combined tax impact can still be substantial. Working with an experienced Maryland estate planning attorney is the most reliable way to model these scenarios and plan accordingly.
5 Strategies for Reducing Your Maryland Estate Tax Exposure
If your estate is approaching or exceeds the $5 million Maryland threshold, there are several proven strategies to consider.
1. Establish a Revocable Living Trust
A revocable living trust does not directly reduce estate taxes, but it provides critical control over how and when your assets are distributed. For married couples, properly structured trust planning can maximize the use of both spouses’ exemptions and avoid the common pitfall of concentrating assets in one estate.
2. Use Annual Gift Exclusions Strategically
The federal annual gift tax exclusion for 2026 allows you to give up to $19,000 per recipient per year (or $38,000 for married couples giving jointly) without touching your lifetime exemption. Consistent annual gifting over time can meaningfully reduce the size of your taxable estate.
3. Consider Irrevocable Life Insurance Trusts
Life insurance proceeds are included in your taxable estate if you own the policy at death. An irrevocable life insurance trust (ILIT) removes the policy from your estate, which can be especially valuable for Maryland residents hovering near the $5 million threshold.
4. Plan for Long-Term Care Costs
Long-term care expenses can significantly reduce an estate’s value, but relying on that is not a strategy. Proactive long-term care planning that coordinates with your estate plan ensures that your assets are protected whether you need extended care or not.
5. Leverage Spousal Portability at Both Levels
While the federal exemption is portable between spouses, Maryland’s estate tax exemption also offers a form of portability. A surviving spouse can claim the unused portion of the deceased spouse’s Maryland exemption, but proper documentation and timely filing are required.
Common Mistakes Maryland Families Make
Even families who are aware of the state estate tax often stumble in a few predictable ways.
The first mistake is underestimating the size of the estate. Your taxable estate includes your home, retirement accounts (IRAs and 401(k)s), life insurance death benefits, investment accounts, business interests, and more. Many families who think they are well below $5 million are surprised when the actual number is calculated.
The second mistake is failing to update estate planning documents after major life events. Marriage, divorce, the birth of a child, the sale of a business, or an inheritance can all push your estate into a different tax bracket.
The third mistake is ignoring the inheritance tax when naming beneficiaries. Leaving a significant bequest to a non-exempt beneficiary without accounting for the 10% inheritance tax can create an unintended financial burden on the people you are trying to help.
Why 2026 Is a Critical Year to Review Your Plan
The permanent $15 million federal exemption provides welcome certainty at the federal level, but it also creates a false sense of security for Maryland residents. The state-level exposure has not changed, and with home values and retirement account balances continuing to grow, more Maryland families are crossing the $5 million threshold each year.
If you have not reviewed your estate plan recently, or if your plan was built around the assumption that the TCJA exemption would sunset, 2026 is the year to revisit your strategy. The rules have changed, and your plan should reflect that.A conversation with an experienced Maryland elder law and estate planning firm is the most effective first step. The right plan can protect your family from unnecessary taxation and ensure that your legacy reaches the people who matter most.
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