Maryland imposes an inheritance tax on certain beneficiaries who receive property from a deceased person’s estate, depending on their relationship to the decedent.
Unlike estate taxes, Maryland inheritance tax may apply to both probate and non-probate assets, making it an important consideration in estate planning.
What Is the Maryland Inheritance Tax?
The Maryland inheritance tax is a tax on the transfer of property from a deceased person to certain beneficiaries. The tax is based on who receives the property, rather than the total value of the estate.
Importantly, inheritance tax is not limited to probate assets. In Maryland, the tax may apply to both probate and non-probate assets, depending on the beneficiary’s relationship to the decedent.
Probate vs. Non-Probate Assets and Inheritance Tax
Many people assume that avoiding probate also avoids inheritance tax. This is not always the case.
Maryland inheritance tax may apply to assets that pass through probate as well as assets that pass outside of probate, such as beneficiary-designated accounts or certain jointly owned property, depending on who receives the asset.
Because inheritance tax focuses on the recipient rather than the probate process, non-probate transfers are not automatically exempt from inheritance tax.
Who Is Subject to Inheritance Tax in Maryland?
In Maryland, inheritance tax generally applies to beneficiaries who are not considered close relatives.
Beneficiaries Typically Exempt from Inheritance Tax
Surviving spouses
Children and stepchildren
Parents
Grandchildren
Siblings
Beneficiaries Who May Be Subject to Inheritance Tax
Nieces and nephews
Cousins
Friends
Unrelated individuals
The determining factor is the relationship between the beneficiary and the decedent, not the size of the inheritance.
How Much Is the Maryland Inheritance Tax?
The Maryland inheritance tax rate is generally 10% of the value of property received by a taxable beneficiary.
The tax is calculated based on:
The fair market value of the inherited property
Any applicable exemptions or exclusions
The beneficiary’s classification under Maryland law
Inheritance tax is typically paid before distributions are completed, which can affect estate administration timelines.
How Inheritance Tax Affects Estate Administration
Inheritance tax obligations can create unexpected issues during estate administration if they are not anticipated in advance. The personal representative must determine:
Which beneficiaries are subject to inheritance tax
Which assets are taxable
How the tax will be paid
Failure to plan for inheritance tax can delay distributions and reduce the amount beneficiaries ultimately receive.
Inheritance Taxes and Estate Planning
Inheritance tax is an important consideration in Maryland estate planning, particularly when a client intends to leave assets to non-exempt beneficiaries.
Estate planning can help:
Identify potential inheritance tax exposure
Clarify how taxes will be paid
Reduce unintended financial burdens on beneficiaries
Avoid disputes among heirs
Because inheritance tax applies based on the recipient rather than the probate process, avoiding probate alone does not necessarily eliminate Maryland inheritance tax exposure. Maryland inheritance tax may apply to probate and non-probate assets, depending on who receives the property.
Why Planning Ahead Matters
Many individuals are surprised to learn that inheritance tax may apply even to modest estates and to non-probate assets. Addressing inheritance tax issues as part of an estate plan can:
Prevent confusion and frustration for beneficiaries
Reduce administrative delays
Preserve the value of the estate
- Inheritance tax issues can become even more complicated when someone dies without a will, as asset distributions are governed by state law rather than personal intent.
Inheritance taxes can significantly affect how much beneficiaries ultimately receive. An experienced estates and trusts attorney can help you understand Maryland inheritance tax rules and incorporate them into a thoughtful estate plan.