The federal estate tax rules changed significantly in 2026, but Maryland’s estate tax rules did not. Beginning in 2026, the federal estate and gift tax exemption increased to $15 million per person, while Maryland’s estate tax exemption remains at $5 million per person. For married couples, the difference is equally significant: federal law can potentially provide up to $30 million in combined exemptions, while Maryland provides a $5 million exemption for each spouse, potentially allowing a married couple to protect up to $10 million.
This difference matters because many Maryland residents who have no reason to be concerned about federal estate tax may nevertheless have significant Maryland estate tax exposure. A person with an $8 million estate, for example, is well below the $15 million federal exemption but is $3 million above Maryland’s $5 million exemption. The federal increase did not eliminate the need for estate tax planning in Maryland. In many cases, it simply made Maryland’s much lower exemption more important.
For families with substantial real estate, retirement accounts, investments, business interests, and life insurance, the first step is understanding what is actually included when the value of an estate is calculated. The second is determining whether there are planning opportunities available to reduce potential Maryland estate tax while still accomplishing the family’s broader estate-planning goals.
For years, many people associated estate tax planning with extremely wealthy families. With the federal exemption now at $15 million per person, that perception is understandable. Maryland, however, has its own estate tax system and its own much lower exemption.
Maryland’s estate tax exemption is $5 million per person. This means that an individual Maryland resident can have an estate far below the federal exemption and still have a Maryland estate tax liability. Maryland’s estate tax rates are graduated and reach a maximum rate of 16 percent, so the potential tax should not be dismissed simply because no federal estate tax will be due.
The distinction is especially important because an estate can become larger than a person realizes. A valuable home, retirement savings accumulated over a career, brokerage accounts, business interests, and life insurance can collectively place an individual much closer to Maryland’s $5 million threshold than expected. Estate tax planning therefore should not be reserved for people who consider themselves extraordinarily wealthy.
Maryland’s $5 million exemption applies to each individual. As a result, a married couple can potentially use a total of $10 million in Maryland estate tax exemptions.
Each spouse has his or her own $5 million exemption. If the first spouse dies without using all of that exemption, Maryland allows the surviving spouse to use the unused portion in addition to the surviving spouse’s own exemption. This is called portability.
For example, if a husband dies without using any of his $5 million Maryland exemption, his wife may be able to use that unused $5 million in addition to her own $5 million exemption. She could therefore have as much as $10 million available when her estate is eventually administered.
There is an important procedural step. After the first spouse dies, an estate tax return must be filed to claim the unused exemption for the surviving spouse. This is particularly easy to overlook when the first spouse’s estate is below $5 million because the family may assume that, since no Maryland estate tax is due, there is no estate tax issue to address.
The unused exemption can become extremely valuable later. A surviving spouse may inherit additional property, a home may appreciate substantially, retirement and investment accounts may continue to grow, or other assets may increase in value. What appears to be an unnecessary tax filing after the first death can ultimately have a substantial effect on the taxes due after the surviving spouse’s death.
For this reason, estate planning for married couples should consider both spouses’ exemptions and what is likely to happen after the first death. It is not enough to look only at whether estate tax will be due when the first spouse dies.
Maryland is unusual because it imposes both an estate tax and an inheritance tax. Although the two are frequently confused, they operate differently.
The Maryland estate tax is imposed on the estate itself and becomes relevant when the taxable estate exceeds the applicable exemption. The Maryland inheritance tax, on the other hand, generally depends upon the relationship between the person who died and the person receiving the property.
Many close family members are exempt from Maryland inheritance tax. These generally include spouses, children and other lineal descendants, parents, grandparents, siblings, stepchildren, and certain other close relatives. Property passing to certain other beneficiaries, including friends, nieces and nephews, more distant relatives, and unmarried partners, may be subject to Maryland’s 10 percent inheritance tax.
This is one reason estate planning involves more than deciding who should receive property. The identity of the beneficiaries, the way assets are owned, and the manner in which those assets pass at death can all have tax consequences. Maryland also provides a credit for inheritance tax paid against Maryland estate tax otherwise due, which makes it important to consider the two taxes together when evaluating an estate.
One of the most common misconceptions about estate tax is that an “estate” consists only of the assets that go through probate. That is not the proper way to determine potential estate tax exposure. Assets that pass outside probate can still be relevant when determining the value of an estate for tax purposes.
A person’s estate may include real estate, retirement accounts, brokerage and investment accounts, bank accounts, business interests, valuable personal property, and life insurance proceeds, depending upon the ownership and circumstances of the particular assets. As a result, someone can have a relatively modest probate estate while having a much larger estate for tax purposes.
Life insurance is often one of the biggest surprises. A person with a $2 million term life insurance policy may not think of that policy as a $2 million asset because it may have little or no value during the insured person’s lifetime. The death benefit, however, may be relevant to the estate tax calculation.
Consider a Maryland resident who owns a home worth $1.5 million, has $2 million in retirement and investment accounts, and carries $2 million in life insurance. That person may not think of himself or herself as having a $5.5 million estate, but those assets can place the individual above Maryland’s estate tax threshold. The same phenomenon occurs with married couples who have accumulated assets over decades. Two careers, retirement savings, a valuable home, investments, life insurance, and perhaps a business interest can result in a combined estate approaching $10 million without the family necessarily thinking of itself as exceptionally wealthy.
For that reason, a meaningful estate tax analysis begins by identifying and valuing all of the relevant assets. Only then can an attorney determine whether Maryland estate tax is a concern and what planning options may be appropriate.
There is no single estate tax strategy that is appropriate for every family. Effective planning depends upon the value and type of assets involved, the client’s age and financial needs, whether the client is married, the intended beneficiaries, and what the client ultimately wants to accomplish.
For some clients, lifetime gifting can be an effective part of the plan. Maryland does not impose a separate state gift tax, so transferring assets during life may reduce the value of the property ultimately subject to Maryland estate tax. Gifting, however, should not be undertaken solely for tax reasons. Once property is given away, the client generally gives up ownership and control, and income tax consequences must also be considered. A strategy that reduces estate tax but jeopardizes the client’s own financial security is not good estate planning.
Trust planning can also be important, particularly for married couples. Marital deduction planning may allow property to pass for the benefit of a surviving spouse without triggering estate tax at the first death. QTIP and other marital trusts can be particularly valuable when a client wants to provide for a surviving spouse while also controlling where the remaining property will ultimately pass. This frequently arises in second marriages and blended families, where providing for a spouse and protecting an inheritance for children may be equally important objectives.
Disclaimer planning can provide another form of flexibility. A properly drafted estate plan may permit a surviving spouse or another beneficiary to decline certain property so that it passes under alternative provisions of the estate plan. This allows some decisions to be made after a death, when the family’s financial circumstances, asset values, and applicable tax laws are actually known, rather than requiring every tax decision to be made years in advance.
For families with larger estates, irrevocable trusts may also be appropriate. In the right circumstances, transferring assets to an irrevocable trust can remove assets and potentially future appreciation from the taxable estate. These trusts involve significant legal and financial consequences, however, and should not be used simply because they may produce a tax benefit. The client’s need for access to assets, financial security, family circumstances, and long-term objectives all need to be considered.
The objective of good estate tax planning is not to use the greatest number of sophisticated techniques. It is to select the strategies that accomplish the client’s goals while avoiding unnecessary taxes and preserving sufficient flexibility and financial security.
Many estate tax planning opportunities are time-sensitive. Lifetime gifts, by definition, must be made during life. Trust planning may require assets to be transferred, ownership to be changed, or beneficiary designations to be coordinated before death. Married couples also need to be aware of the filing necessary after the first spouse’s death if the surviving spouse is going to use the deceased spouse’s unused Maryland exemption.
Waiting until an estate tax return is due can therefore mean that some of the best planning opportunities are already gone. By that point, the value of the estate and ownership of the assets are largely fixed, and the family may be left trying to address a tax liability that could have been reduced through earlier planning.
Estate tax planning is most effective when it is incorporated into the overall estate plan rather than treated as a separate problem to be addressed after death. The tax consequences should be considered together with the client’s wishes for a surviving spouse, children, other beneficiaries, and the management and distribution of assets.
Many Maryland residents who could eventually be affected by the estate tax do not realize it because they have never added together the value of all of the assets that may be relevant at death. A person who does not consider himself or herself wealthy may nevertheless be close to Maryland’s $5 million exemption once real estate, retirement accounts, investments, business interests, and life insurance are taken into account.
The same is true for married couples. Maryland’s exemption is $5 million per person, so a couple can potentially use $10 million of exemptions. A couple with substantial retirement savings, a valuable home, investment accounts, life insurance, and other assets may be much closer to that figure than expected.
The contrast with federal law makes the issue particularly important in 2026. With a $15 million federal exemption per person, an individual Maryland resident can have substantial Maryland estate tax exposure without owing a dollar of federal estate tax. For married couples, federal exemptions can potentially reach $30 million, compared with Maryland’s potential $10 million between the spouses.
The first question is therefore not whether you need a particular type of trust or whether you should begin giving assets away. The first question is whether Maryland estate tax is likely to affect your family at all. Once that is determined, an estate-planning attorney can evaluate the available strategies in light of your assets, financial needs, family circumstances, and long-term objectives.
Estate planning is ultimately about much more than minimizing taxes. Most clients want to know that the assets they spent years building will pass to the people they choose, that a surviving spouse will be financially secure, that children and other beneficiaries will be protected, and that unnecessary taxes and expenses will not reduce the inheritance they intended to leave.
Maryland’s relatively low estate tax exemption makes state-specific planning particularly important. An estate plan focused only on federal estate tax rules can overlook a substantial Maryland tax liability, particularly now that the federal exemption is three times Maryland’s individual exemption.
At C&O Law Group, LLC, we work with Maryland individuals and families to evaluate their assets, identify potential estate tax exposure, and develop estate plans designed around both their financial circumstances and their family goals. Estate tax planning is not about inserting complicated provisions into every estate plan. It is about understanding the client’s circumstances and using the planning tools that actually make sense for that family.
If your individual estate is approaching $5 million, you and your spouse have substantial combined assets, or you simply are not sure whether Maryland estate tax could affect your family, contact C&O Law Group, LLC to schedule an estate-planning consultation. Identifying the issue while planning options are still available can make a significant difference in what ultimately passes to your family.
This article provides general information about Maryland estate tax law and is not legal advice. Estate tax exposure depends on the full composition of your estate, your marital status, and elections made on a timely basis. For advice on your specific situation, consult a licensed attorney in your jurisdiction.
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