Testators establishing estate plans in Maryland may need to employ more caution than those thinking about their legacy in other nearby states. Especially for those who have valuable personal resources, such as business holdings, real estate or investment accounts, planning to minimize estate taxes may be a beneficial step.
While people in many other jurisdictions are only subject to federal estate taxes, Maryland is one of the few states that still imposes a state-level estate tax. Those hoping to maximize what their beneficiaries inherit may need to plan carefully to avoid estate taxes or minimize the tax rate that will apply eventually to their estate.
When are Maryland residents subject to estate taxes?
Estate taxes only apply to relatively large estates, as both Maryland state statutes and federal regulations allow for the exemption of millions of dollars in assets. Most people can completely avoid estate taxes with careful planning.
The exemption threshold at the state level is substantially lower than the federal estate tax exemption currently offered.
The applicable exemptions in 2026 are:
- $5 million for Maryland estate taxes
- $15 million for federal estate taxes
If the estate owes Maryland estate taxes, they are due nine months after the date of the decedent’s passing.
What tax rate applies?
There are also different tax rates that may apply depending on the overall value of the estate. Both the Maryland and federal estate taxes are progressive, which means that the larger an estate becomes, the higher the tax rate that applies. Attempting to estimate estate tax liability can be a challenge.
The lowest Maryland estate tax rate is 0.8%, while the highest rate is 16%. The more the estate exceeds the exception limit, the higher the tax rate that applies. An estate worth $5,440,000 could be subject to a 4% estate tax, leading to $17,600 in taxes owed. The $440,000 over the Maryland estate tax exemption limit is the only portion of the state subject to taxes, and federal estate taxes do not apply.
If an estate is large enough for the federal estate tax to apply, then the maximum 16% rate applies. The federal estate tax ranges from 18% to 40%, and it involves a base tax amount as well as percentage-based tax for each different rate. An estate worth $16,500,000 could owe $1,840,000 in Maryland estate taxes and $545,800 in federal estate taxes.
Federal and state estate tax exposure requires careful estate planning facilitated by an experienced lawyer. Testators worried about minimizing estate taxes generally need assistance altering how they own assets, creating trusts and planning strategic gifts to minimize their state and federal liability, and that’s okay.