A widowed grandmother in Bethesda dies in 2026, leaving her $1.2 million house and $800,000 in savings to her younger sister. No estate tax is due — the combined $2 million estate is well below Maryland’s $5 million exemption. But the sister still owes Maryland approximately $200,000 in inheritance tax: 10% of the $2 million transfer, with no meaningful exemption. The family didn’t know the second tax existed. They thought $5 million was the only number that mattered. They were half right.

Maryland is the only US state that imposes both a state estate tax and a state inheritance tax.1The combination is structurally rare — New Jersey repealed its estate tax in 2018 but kept its inheritance tax; Connecticut has an estate tax and a separate gift tax but no inheritance tax; the other inheritance-tax states (Kentucky, Nebraska, Pennsylvania) don’t layer an estate tax on top. Maryland kept both because they tax different things and serve different policy purposes: the estate tax catches large estates regardless of who inherits, and the inheritance tax catches transfers outside the immediate family regardless of estate size.

For most Maryland families — an estate well below $5 million passing to a surviving spouse and children — neither tax applies. For families above the exemption, or for families where the natural heir isn’t a Class A relative, the planning conversation matters more in Maryland than in almost any other state. This piece walks through how the two taxes interact, who is exempt from which, the credit mechanism that prevents pure double-taxation, and the four planning moves that close most of the exposure on the family home.

The Maryland estate tax

The Maryland estate tax under Md. Code Ann., Tax-Gen. §§ 7-301 et seq. applies to the gross estate of a Maryland decedent at death, less standard deductions (debts, administrative expenses, the marital deduction, the charitable deduction) and the $5 million exemption.1 The taxable estate above the exemption is taxed on a graduated schedule from roughly 0.8% on the first increment to 16% on the largest estates.

Three features of the Maryland estate tax distinguish it from the federal estate tax and from most peer states:

The Maryland inheritance tax

The Maryland inheritance tax under Md. Code Ann., Tax- Gen. Title 7, Subtitle 2 is structurally older and mechanically different.2Where the estate tax cares about the size of the estate, the inheritance tax cares about the relationship between decedent and beneficiary. The rate is a flat 10% — no graduated schedule — on transfers to non- exempt beneficiaries, with no meaningful exemption amount (a small administrative-minimum threshold exists but doesn’t function as a planning exemption).

Who is exempt from the inheritance tax

Md. Code Ann., Tax-Gen. § 7-203 exempts the following classes of beneficiary entirely:3

The exemption is one of the broader ones among the inheritance-tax states. Maryland’s inclusion of siblings is particularly distinctive — Pennsylvania and Kentucky tax sibling inheritances; Maryland does not. The practical effect is that the inheritance tax rarely touches typical “family-line” inheritances: parent to child, grandparent to grandchild, sibling to sibling.

Who pays the inheritance tax

Every other beneficiary pays the flat 10% on the value of their inheritance. The list of taxable beneficiaries includes:

A $500,000 transfer to a niece triggers $50,000 of inheritance tax. A $1 million transfer to an unmarried partner of thirty years triggers $100,000 of inheritance tax. A $250,000 cash bequest to a longtime friend triggers $25,000. Charitable organizations are separately exempt, but the exemption doesn’t extend to gifts routed through individual heirs.

How the two taxes interact

Because both taxes can apply to the same estate, the Maryland Code includes a credit mechanism under Md. Code Ann., Tax-Gen. § 7-309(b): inheritance tax paid on property included in the gross estate is credited against the Maryland estate tax otherwise due.4 The credit prevents the same transfer from being taxed twice at full rates.

In practice, three scenarios cover the typical Maryland estate:

Scenario 1: small estate, lineal beneficiaries

A $2 million estate passing entirely to a surviving spouse and adult children. The estate is below the $5M exemption (no estate tax). All beneficiaries are exempt under § 7-203 (no inheritance tax). Total Maryland tax: $0. This is the typical case, and the one most Maryland family lawyers correctly characterize as “don’t worry about it.”

Scenario 2: small estate, non-lineal beneficiary

A $2 million estate where $1 million goes to a niece and $1 million to a sibling. The estate is below the exemption (no estate tax). The sibling is exempt (no inheritance tax). The niece’s $1 million share is subject to inheritance tax at 10% — $100,000 payable. Total Maryland tax: $100,000, all paid by or on behalf of the niece. This is the case Maryland families most often miss; it’s also where the planning has the highest leverage.

Scenario 3: large estate, mixed beneficiaries

A $10 million estate, $5M to children (exempt beneficiaries) and $5M to a niece (non-exempt). The $5M to children is in the gross estate but generates no inheritance tax. The $5M to the niece generates $500,000 of inheritance tax. The total gross estate ($10M) is above the $5M exemption by $5M, generating estate tax of approximately $600,000 on the taxable portion. The credit under § 7-309 allows the $500,000 inheritance tax to offset the estate tax, reducing the estate tax to approximately $100,000. Total Maryland tax: approximately $600,000.

The credit means the same dollar isn’t taxed twice at full rates. But the inheritance-tax obligation is the floor — if inheritance tax exceeds the estate tax that would otherwise be due, the excess isn’t refunded. For families with substantial non-exempt beneficiaries and modest gross estates, the inheritance tax can be the only tax that actually applies.

The family-home problem

The single most common Maryland inheritance-tax surprise involves the family home being left to a non-exempt beneficiary — typically a niece, nephew, or unmarried partner who served as a primary caregiver. The dollar amounts are substantial because Maryland real estate is expensive. The Montgomery County, Howard County, and Baltimore County housing markets routinely produce $700,000–$1.2M family homes, and a 10% inheritance tax on that value is $70,000–$120,000 of cash that the beneficiary generally does not have.

The inheritance tax is owed at the time the estate is administered — before the beneficiary can sell or refinance the property. In practice, the tax is paid from estate funds when possible. When the estate is asset-poor (a paid-off house and minimal cash), the beneficiary may need to sell the house to pay the tax, which defeats the bequest’s purpose.

Maryland does not have a homesteadexemption for inheritance-tax purposes — the residential nature of the property doesn’t reduce the tax. The fair-market value of the home at the date of death is the tax base, full stop.

Probate mechanics in Maryland

Maryland probateruns through the Orphans’ Court in each county (and Baltimore City) with the Register of Wills as the administrative entry point.5 The Register collects the inheritance tax as part of estate administration; the tax must generally be paid before the estate can distribute property to beneficiaries.

Key procedural points:

The domicile question for MD/FL snowbirds

A substantial number of Maryland retirees split time between Maryland and Florida (which has no state estate or inheritance tax). The domicile question — which state was the decedent’s legal home at death — is the single biggest variable in whether Maryland transfer taxes apply at all.

Maryland taxes the worldwide estate of a Maryland domiciliary (less credits for tax paid to other states on out-of-state real and tangible property). A non-domiciliary owning Maryland real property is taxed on the Maryland real property only. The domicile question is fact-and-circumstances:

A casual domicile change — Florida driver’s license, retained Maryland house, most of the year still in Maryland — does not survive scrutiny from the Maryland Comptroller. A genuine domicile change — primary residence relocated, Maryland house sold or downsized, social and medical relationships moved — does. For retirees genuinely splitting their lives, the domicile decision has direct tax consequences worth modeling explicitly.

The four planning moves

For Maryland families whose intended heirs include non-exempt beneficiaries, or whose estates approach the $5M threshold, four planning approaches close most of the exposure.

1. Lifetime gifting (no Maryland gift tax)

Maryland has no state gift tax. The federal annual- exclusion gift ($19,000/recipient in 2026) and the federal lifetime exemption can both be used to move assets out of the Maryland gross estate during life without triggering any state-level tax. For a Maryland parent leaving substantial assets to a niece or unmarried partner, a sequence of annual- exclusion gifts over 5–15 years can transfer material wealth outside both the estate tax and inheritance tax bases. Gifts made within three years of death are pulled back into the estate under certain circumstances; well-timed gifting requires time.

2. Irrevocable trusts for non-exempt beneficiaries

Assets transferred to a properly drafted irrevocable trust during life are generally outside the Maryland inheritance-tax base for the donor’s subsequent death. The mechanism is sophisticated drafting that requires careful attention to retained interests, trustee selection, and federal grantor- trust rules, but for Maryland families with substantial non-exempt beneficiaries, an irrevocable trust funded well before death can functionally eliminate the Maryland inheritance-tax liability on the trust assets.

3. Life insurance to gross up the inheritance

When the family home is intended for a non-exempt beneficiary, a life-insurance policy owned outside the estate (in an irrevocable life insurance trust, or ILIT) can provide the cash the beneficiary needs to pay the inheritance tax without having to sell the home. The mechanism doesn’t reduce the tax; it provides liquidity to pay it. For families where the planning intent is “keep the family house in the family,” this is often the highest-leverage move available.

4. Marital and charitable planning

Transfers to a surviving spouse and to qualified charities are exempt from both Maryland transfer taxes. The marital deduction and the charitable deduction operate at full value. A properly-structured marital trust can defer the full estate-tax bill until the second death, and a DSUE election preserves the first-to-die’s unused exemption for the surviving spouse’s estate. For families with charitable intent, a charitable remainder trust or a direct bequest can move significant assets out of the taxable estate while providing meaningful family-level benefit (lifetime income, or appreciation kept inside the family until the charity receives the remainder).

Aging-parent considerations

For Maryland families with an aging parent, several features of the system shape practical planning:

What to do for an at-risk Maryland family

If your Maryland parent’s intended heirs include non-exempt beneficiaries, or the estate is approaching or above the $5M exemption:

The bottom line

Maryland is the only state in the country that taxes large estates and non-lineal inheritances at both levels. The combination is structurally rare and functionally significant for two categories of Maryland family: those with estates above the $5 million exemption (now affecting more upper-middle- class households as the unindexed threshold has been eroded by inflation), and those whose intended heirs include nieces, nephews, cousins, unmarried partners, or longtime friends. The credit mechanism prevents pure double-taxation, but the inheritance tax is a floor that the credit can’t reduce below. The planning toolkit — lifetime gifting, irrevocable trusts, life insurance, marital and charitable planning — is standard and effective, but each move requires runway to execute. The Maryland family that learns about the inheritance tax at the Register of Wills, after death, after the niece is already named on the deed, is the family for whom the planning lever was available but never used. The conversation is worth having while there’s still time to act on it.