If you’re dealing with an inheritance in Maryland or planning your estate, there’s a conversation nobody wants to have but absolutely needs to happen: Maryland inheritance tax. It’s not the most exciting topic at the dinner table, but ignoring it can cost your heirs thousands of dollars they don’t expect to lose.
Here’s the real talk: Maryland is one of only six states that still charges an inheritance tax. That means when someone passes away and leaves you money, property, or assets, Maryland wants a cut. The amount varies wildly depending on who you are to the deceased and what you inherit. A spouse might pay nothing. A distant cousin could owe 18% of their inheritance.
The good news? With some smart planning now, you can minimize what your family actually pays. This guide walks you through everything you need to know about Maryland’s inheritance tax rules, exemptions, and strategies to keep more money in your family’s hands where it belongs.
What is Maryland Inheritance Tax?
Let’s start with the basics. Maryland’s inheritance tax is a state-level tax imposed on people who receive money or property from someone who has died. Think of it like this: when you inherit something, Maryland considers it income to you, and they want their share before you get to keep the rest.
This is different from the federal estate tax (which only hits extremely large estates) and different from property taxes. According to the Maryland Department of Assessments and Taxation, the state collects inheritance tax on most assets passed down through a will or intestate succession.
The tax applies to real property (land and buildings), tangible personal property (cars, jewelry, furniture), and intangible personal property (stocks, bonds, bank accounts). The only exception? Property that passes directly to certain beneficiaries through non-probate mechanisms—which we’ll cover later.
Maryland has been collecting this tax since 1896, making it one of the oldest inheritance taxes in the country. While most states have phased out inheritance taxes over the decades, Maryland keeps it because it generates real revenue for the state. In recent years, the state collects roughly $50-60 million annually from inheritance taxes.
Pro Tip: If you’re inheriting assets in Maryland or planning your estate, act now. The difference between a well-structured plan and no plan can literally be tens of thousands of dollars your family keeps versus loses to taxes.
Who Pays and Who Doesn’t
Here’s where it gets interesting. Not everyone who inherits something in Maryland pays the same tax rate—or pays anything at all. Your relationship to the deceased person is the biggest factor.
These people pay ZERO inheritance tax:
- Spouses (married couples are completely exempt)
- Lineal descendants (children, grandchildren, great-grandchildren, etc.)
- Lineal ancestors (parents and grandparents)
- Charitable organizations and religious institutions
These people might pay inheritance tax:
- Siblings
- Nieces and nephews
- Aunts and uncles
- Cousins (any degree)
- Friends, business partners, and unrelated people
If you’re a direct descendant or spouse, congratulations—you’re in the clear. This is actually why Maryland’s inheritance tax is less punishing than some other states. The tax is designed to hit more distant relationships and unrelated beneficiaries harder.
However, here’s a wrinkle: even if you’re exempt, someone still has to file a return and report the inheritance. The executor of the estate is typically responsible for filing the Maryland Inheritance Tax Return (Form 001) within nine months of the death, even if no tax is ultimately owed.
Tax Rates by Relationship
Maryland uses a tiered system. The further removed you are from the deceased, the higher your tax rate. Here’s the breakdown for 2024:
- Class A (Spouse, lineal descendants, lineal ancestors): 0% (exempt)
- Class B (Siblings, children and grandchildren of siblings, stepchildren, adopted children): 10% on amounts over $1,000
- Class C (All other beneficiaries): 15% on amounts over $500
Let’s make this concrete. Say your aunt passes away and leaves you $50,000. You’re a Class C beneficiary (niece/nephew). Here’s what happens:
- Subtract the $500 exemption: $50,000 – $500 = $49,500
- Apply 15% tax rate: $49,500 × 0.15 = $7,425
- Your inheritance after tax: $50,000 – $7,425 = $42,575
That’s a meaningful chunk of change gone. Now imagine inheriting real estate worth $300,000 or a business valued at $500,000. The tax bill becomes serious fast.
Class B rates are slightly better. If a sibling left you that same $50,000, you’d owe $4,900 instead of $7,425. Still painful, but less so.
Warning: These rates apply to the net value of the inheritance after debts and funeral expenses are paid. The executor needs to calculate this carefully. Mistakes here can trigger an audit.
Exemptions and Deductions
Beyond the basic exemptions by relationship class, Maryland offers a few other ways to reduce your inheritance tax liability.
The Homestead Exemption: If you inherit the family home and it was your primary residence, you might qualify for a homestead exemption. This can significantly reduce the taxable value of the property. However, you need to file for this—it doesn’t happen automatically. The deadline is typically one year after the death.
Funeral and Administration Expenses: These are deducted from the estate before inheritance tax is calculated. That includes funeral costs, probate fees, court costs, and executor fees. Proper documentation is crucial here.
Debts of the Deceased: Outstanding mortgages, credit card debts, medical bills, and other liabilities reduce the taxable estate. If your aunt left $100,000 but had $30,000 in debts, only $70,000 is subject to inheritance tax.
The $1,000 and $500 Exemptions: Class B beneficiaries get a $1,000 exemption per inheritance. Class C beneficiaries get $500. These aren’t huge, but they help.
For more details on how property taxes factor into your overall tax picture, check out our guide on whether real estate taxes are the same as property taxes.
One more thing: if the deceased person owned property in multiple states, you might owe inheritance taxes in those states too. This gets complicated fast, which is why professional help is worth the investment.
Property and Real Estate Considerations
Real estate is where Maryland inheritance tax gets particularly tricky. If you inherit a house, rental property, or land, Maryland taxes the full fair market value of that property as of the date of death.
Let’s say your father owned a house worth $400,000 when he died. As his child, you’re exempt from inheritance tax on that property. But you do need to understand the “stepped-up basis” concept, because it affects capital gains tax later.
When you inherit property, the cost basis is “stepped up” to the fair market value on the date of death. If your dad paid $150,000 for the house 30 years ago and it’s worth $400,000 when he dies, your new cost basis is $400,000. If you sell it a year later for $410,000, you only owe capital gains tax on $10,000 of gain—not the full $260,000 difference. This is a huge benefit.
However, if you’re a distant relative or unrelated beneficiary inheriting real estate, you face a double tax hit: first the Maryland inheritance tax on the property value, then later capital gains tax if you sell. This is why planning matters so much.
For more on how capital gains work when you sell inherited property, see our capital gains tax calculator on sale of property.
One strategy: if the property will be held for a long time or used as a rental, the inheritance tax paid upfront might be worth it to get the stepped-up basis benefit. But if you plan to sell quickly, you might want to explore other options like having the property transferred to a trust before death to avoid probate and potential tax complications.
Smart Planning Strategies to Reduce Your Tax Burden
Now for the good stuff. Here are concrete ways to minimize Maryland inheritance tax before it’s too late.
1. Use Non-Probate Transfer Methods
Property that passes outside of probate (like joint accounts, transfer-on-death accounts, or life insurance) isn’t subject to Maryland inheritance tax. This is huge. If you own a bank account and add your child as a joint owner, that money passes directly to them outside of probate—no inheritance tax.
The same applies to retirement accounts (IRAs, 401(k)s) and life insurance proceeds. These pass directly to named beneficiaries, bypassing Maryland’s inheritance tax entirely.
Strategy: Review your accounts. Any accounts without a named beneficiary should get one. Any accounts that could be joint should be considered for joint ownership (though consult an attorney about other implications).
2. Make Gifts During Your Lifetime
Maryland doesn’t have a gift tax. You can give away money and property to anyone, anytime, in any amount without state tax consequences. The federal government has limits on gift tax-free transfers, but Maryland doesn’t impose its own gift tax.
This means you can reduce the size of your taxable estate by giving gifts now. Give $20,000 to your niece this year, and when you die, that $20,000 isn’t in your estate to be taxed. Over time, this strategy can significantly reduce inheritance taxes owed by your heirs.
3. Establish a Revocable Living Trust
Assets in a revocable living trust pass outside of probate to your named beneficiaries. While the trust itself doesn’t reduce inheritance tax (the beneficiaries still owe it if they’re not exempt), it does avoid probate, which saves money on court fees and executor fees. Those savings can partially offset the inheritance tax.
More importantly, a trust gives you control over how assets are distributed and can include specific instructions to minimize tax impact.
4. Consider Irrevocable Trusts for Non-Exempt Beneficiaries
If you want to leave money to a friend or distant relative who will owe inheritance tax, an irrevocable trust can help. Assets in an irrevocable trust are removed from your taxable estate, reducing what your heirs inherit and therefore what they owe in tax.
The tradeoff: you lose control of the assets once they’re in the trust. This is a serious decision and requires professional guidance.
5. Leverage the Annual Gift Tax Exclusion
While Maryland has no gift tax, the federal government allows you to give up to $18,000 per person per year (in 2024) without using any of your lifetime gift tax exemption. A married couple can give $36,000 per person per year.
If you have multiple children or grandchildren, this adds up. Over 10 years, you could transfer $180,000 to each child completely tax-free, reducing your estate and the inheritance tax burden on your heirs.
6. Use Life Insurance Strategically
Life insurance proceeds aren’t subject to inheritance tax. If you have a large estate and non-exempt beneficiaries, life insurance can provide tax-free money to pay the inheritance tax bill. This way, your beneficiaries don’t have to sell assets or come up with cash to pay the tax.
7. Document Everything
Keep detailed records of what you own, what it’s worth, what you owe, and how you want it distributed. Make a list of all accounts, their values, and named beneficiaries. This makes the executor’s job easier and reduces the chance of mistakes that trigger an audit.
Pro Tip: Meet with an estate planning attorney and a tax professional before you die, not after. The cost of planning ($1,000-3,000) is a tiny fraction of what you’ll save in taxes. For context, check out our guide on average cost of tax preparation by CPA to understand what professional help typically costs.
Filing Deadlines and Requirements
When someone dies in Maryland, the executor (the person named in the will to manage the estate) has responsibilities around inheritance tax filing and payment.
Key Deadlines:
- Within 9 months of death: The Maryland Inheritance Tax Return (Form 001) must be filed, even if no tax is owed
- Within 9 months of death: Any inheritance tax owed must be paid in full (extensions are possible but require a written request)
- Within 1 year of death: Homestead exemption must be claimed if applicable
What You Need to File:
- Complete Form 001 (Maryland Inheritance Tax Return)
- A copy of the death certificate
- A copy of the will or letters of administration
- An inventory of all assets and their values as of the date of death
- Documentation of debts, funeral expenses, and administration costs
- Proof of any exemptions claimed
The executor files with the Maryland Department of Assessments and Taxation. If the estate is small or simple, the filing might be straightforward. If it’s complex—multiple properties, business interests, accounts in different states—professional help is almost essential.
Missing the deadline can trigger penalties and interest charges. Maryland doesn’t mess around with late filings. If you’re an executor, don’t procrastinate on this.
One more consideration: if the deceased owned property in other states, you might need to file inheritance tax returns in those states too. This is why working with someone who understands multi-state estate issues is valuable.
For related context on how different tax systems work, you might find it helpful to read about RITA tax or RITA tax in Ohio to understand how other states handle income and transfer taxes differently.
Frequently Asked Questions
Does Maryland have an estate tax or just an inheritance tax?
– Maryland only has an inheritance tax, not an estate tax. The inheritance tax is paid by the person receiving the inheritance, not by the estate itself. This is an important distinction because it means the tax burden falls on individual beneficiaries based on their relationship to the deceased, not on the total estate value.
If I inherit money from a parent, do I have to pay Maryland inheritance tax?
– No. Parents are Class A beneficiaries, which means they’re completely exempt from Maryland inheritance tax. The same applies if you inherit from a spouse or your own children. Direct descendants are always exempt.
What happens if I inherit from a friend or business partner?
– You would owe inheritance tax as a Class C beneficiary. That means 15% tax on the amount inherited, minus a $500 exemption. So if you inherit $10,000, you’d owe 15% × ($10,000 – $500) = $1,425 in Maryland inheritance tax.
Can I avoid Maryland inheritance tax by moving to another state before I die?
– No. Maryland inheritance tax applies based on where the deceased person lived at the time of death, not where the beneficiary lives. If you were a Maryland resident when you died, your estate is subject to Maryland inheritance tax regardless of where your heirs live.
Do I have to pay inheritance tax on life insurance proceeds?
– No. Life insurance proceeds paid directly to a named beneficiary are not subject to Maryland inheritance tax. This is one of the biggest advantages of life insurance—it provides tax-free money to your heirs.
What’s the difference between inheritance tax and capital gains tax?
– Inheritance tax is paid when you receive assets from a deceased person. Capital gains tax is paid later if you sell those assets for more than they were worth when you inherited them. Both can apply to inherited property, but at different times and under different rules. The stepped-up basis helps reduce capital gains tax, but inheritance tax is separate.
If I inherit real estate in Maryland, do I have to pay property taxes on it?
– Yes, property taxes and inheritance tax are separate. You owe inheritance tax once when you inherit the property. Then you owe annual property taxes as long as you own it. These are two different taxes. For more on this, see our article on whether real estate taxes are the same as property taxes.
Can I reduce my inheritance tax by putting everything in a trust?
– A revocable living trust won’t reduce inheritance tax, but it does avoid probate, which saves on court fees and executor fees. An irrevocable trust can reduce inheritance tax for non-exempt beneficiaries because assets in an irrevocable trust are removed from your taxable estate. However, you lose control of the assets, so this is a serious decision.
What if the person who died had debts or a mortgage?
– Debts reduce the taxable estate. If someone dies with $200,000 in assets but $50,000 in debts, only $150,000 is subject to inheritance tax. The executor pays debts from the estate before distributing assets to beneficiaries.
Is there a way to pay inheritance tax over time instead of all at once?
– Possibly. You can request an extension to pay the tax, but you need to do this before the nine-month deadline. Extensions are not automatic—you have to ask. Interest accrues on any unpaid tax, so this is a temporary solution, not a permanent one.
This article is for informational purposes only and should not be considered legal or tax advice. Inheritance and estate tax laws are complex and vary based on individual circumstances. Always consult with a qualified estate planning attorney or tax professional before making decisions about your estate or inheritance.
