If you’ve worked hard to build wealth in Maryland, you may already know that protecting it takes more than strong investment decisions. It also requires understanding, and planning for, a tax environment unlike any other in the country.
Maryland is the only state that imposes both a state estate tax and a separate inheritance tax. That combination, along with the federal estate tax, creates a layered challenge that may catch even well-prepared families off guard.
Understanding Maryland’s estate tax exemption
Maryland’s estate tax applies to the total value of a decedent’s estate. The state offers an estate tax exemption of $5 million per individual.1 Only the portion of your estate above that threshold is subject to the state estate tax, following a graduated rate structure that rises to 16% on the largest estates.2
One feature that benefits married couples is estate tax exemption portability. Maryland allows a deceased spouse’s unused exemption to be transferred to the surviving spouse, potentially doubling the available exemption amount to $10 million for couples who plan properly.
Does Maryland have an estate tax for nonresidents?
Nonresidents who own real property in Maryland face their own exposure. If the total value of your estate exceeds $5 million, you may need to file a Maryland estate tax return. Your Maryland estate tax will be calculated as if the entire estate were in Maryland, then it will be prorated based on the portion of your estate that is situated in the state.
Maryland’s inheritance tax
In addition to the estate tax, Maryland imposes a separate inheritance tax — making it the only state in the country to levy both. A single estate can face two different tax calculations on a transfer of the same assets.
The inheritance tax is assessed on the value of assets received by individual beneficiaries, not on the estate. Whether it applies depends on the beneficiaries’ relationship to the decedent. Maryland law exempts a broad group of close family members, including spouses, registered domestic partners, children and direct descendants, parents and grandparents, siblings, and spouses of children. Charities and government entities are also exempt.
Beneficiaries outside that circle pay a flat 10% tax on the clear value of what they inherit.3 That can be nieces, nephews, cousins, friends, and other nonlineal relatives. There’s no minimum threshold; even modest bequests to nonexempt beneficiaries trigger the tax.
While any inheritance tax paid by the estate can be credited against the estate tax owed, the two taxes still represent a layered, additive cost.
Strategies to help protect your estate
Trusts
For families with estates above the $5 million threshold, trust planning is one of the most effective tools available.
A credit shelter trust, also known as a bypass trust or family trust, is designed to capture and preserve the first spouse’s exemption at death. This structure seeks to prevent the surviving spouse’s estate from exceeding $5 million at their death, reducing or eliminating the estate tax at that point.
Irrevocable trusts — including grantor retained annuity trusts (GRATs) and spousal lifetime access trusts (SLATs) — may also move assets outside a taxable estate while retaining access for the spouse or heirs. Each structure involves trade-offs among control, flexibility, and tax efficiency, and the right approach depends on your specific goals and family composition.
Mercer Advisors has estate planning strategists who work directly with our wealth advisors to help evaluate which structures align with your comprehensive financial plan.
Tax planning
Strategic tax planning can work alongside estate planning to help reduce overall death tax exposure in Maryland.
Thoughtful beneficiary designation, like directing assets to exempt classes where appropriate, can materially reduce or eliminate the inheritance tax. Families wanting to avoid Maryland inheritance tax might consider this the most direct and accessible starting point.
Lifetime gifting
The 2026 federal annual gift tax exclusion allows transfers of up to $19,000 per recipient per year, free of gift tax and outside the taxable estate. For families with larger estates, systematic gifting over time can reduce both estate and potential inheritance tax exposure. Coordinating this approach with a tax team can help ensure the strategy integrates efficiently with your overall tax position.
Maryland also allows inheritance tax paid by the estate to offset estate tax owed, but claiming this credit requires specific filing and payment documentation.
Bringing it together
Maryland’s death tax landscape is complex, and coordination across estate planning, tax planning, and investment management can make a meaningful difference for you and your family. The strategies above may not be as effective in isolation; their value can be better realized when designed together as part of your broader financial picture.
If your estate plan hasn’t been reviewed with Maryland’s specific tax rules in mind, now is the best time to begin that conversation. A comprehensive review can identify exposure you may not be aware of and help protect the wealth you’ve worked to build for your family’s future. At Mercer Advisors, our estate planning team and tax planning team work to integrate their services with your financial plan.
Want to learn more about how Mercer Advisors can help you protect your family and legacy with our estate planning services?
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Yes. Maryland is the only state in the country that imposes both an estate tax and a separate inheritance tax. The inheritance tax is assessed on assets received by certain beneficiaries — specifically those who are not lineal relatives or siblings of the decedent — at a flat rate of 10% on the clear value of the inherited assets.
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The Maryland inheritance tax rate is a flat 10% of the clear value — fair market value minus allowable expenses — of property inherited by nonexempt beneficiaries. Close family members, including spouses, children, grandchildren, parents, grandparents, siblings, and spouses of children, are generally exempt from the tax.
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The inheritance tax is paid by beneficiaries who fall outside Maryland’s exempt categories. Those who are not exempt include nieces, nephews, cousins, friends, unmarried partners, and other nonlineal or nonsibling relatives. The estate may pay the tax on the beneficiary’s behalf, in which case that payment can generate a credit against any Maryland estate tax owed.
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Several strategies may help reduce inheritance tax exposure. For many families, understanding how to avoid Maryland inheritance tax starts with the same fundamentals: directing assets to exempt beneficiaries through thoughtful estate planning; using trust structures that control how and to whom assets are distributed; and making lifetime gifts, which are not subject to the Maryland inheritance tax. Working with estate planning and tax professionals seeks to help coordinate these approaches for your specific situation.
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No. The Maryland estate tax exemption is $5 million per individual, which is not indexed for inflation and changes only through legislation. The federal estate tax exemption, permanently raised to $15 million per individual by the One Big Beautiful Bill Act in 2025, is significantly higher. That $10-million gap means Maryland residents with estates between $5 million and $15 million may owe Maryland estate tax even when no federal estate tax is due — making state-specific estate planning essential.
- “Estate and Inheritance Taxes by State, 2025.” Tax Foundation, Oct. 28, 2025.
- “Senate Bill 211, Fiscal and Policy Note.” Maryland General Assembly, Jan. 19, 2026.
- “House Bill 17, Fiscal and Policy Note.” Maryland General Assembly, April 20, 2026.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All Estate planning document preparation and other legal advice are provided through select third parties, with which Mercer Advisors has a contractual relationship. Mercer Advisors Tax Services, LLC, does not provide financial audit, assurance, compilations, or forensic accounting services
