Part 1 of Pillar Oak's Advanced Planning series for Maryland families.
In 2025 Congress made the federal estate tax exemption permanent at $15 million per person for 2026, indexed for inflation after that. A married couple can now pass $30 million free of federal estate tax. For most families who used to worry about estate tax, that was the end of the conversation.
In Maryland it shouldn't be. Maryland runs its own estate tax, with an exemption of $5 million per person. That figure has been unchanged since 2019 and has no inflation adjustment, so each year of rising home values and market growth brings more Maryland families within reach of it. Maryland is also the only state that imposes both an estate tax and an inheritance tax.
Who it reaches. Estate tax is calculated on everything you own or control at death, and families routinely undercount. The Maryland taxable estate includes:
Your home and any other real estate, at current market value
Retirement accounts (401(k), 403(b), IRA) at their full pre-tax balance
Life insurance death benefits on policies you own, even though the proceeds aren't "yours" until you die
Brokerage and bank accounts, including joint and transfer-on-death accounts
Business interests and partnership or LLC units
Assets in your own revocable trust (a revocable trust avoids probate; it doesn't remove anything from your taxable estate)
A couple in Annapolis or Bethesda with a $1.5 million house, $2 million in retirement accounts, $1 million in a brokerage account and a $1 million life insurance policy has a $5.5 million estate. They don't think of themselves as an estate-tax family. But when the second spouse dies, Maryland will tax everything above $5 million unless the plan has preserved the first spouse's exemption.
What it costs. The Maryland tax is calculated under an older federal formula, but for most estates between $5 million and about $10 million the result is roughly 16 cents on every dollar above the exemption. A single person with an $8 million estate would owe about $480,000 to Maryland and nothing to the IRS. The return and the payment are due nine months after death.
The inheritance tax runs alongside it. Maryland's separate 10% inheritance tax applies to what passes to nieces, nephews, friends, cousins and unmarried partners. Spouses, children, grandchildren, parents and siblings are exempt. When both taxes apply, the inheritance tax paid is credited against the estate tax, but anyone planning gifts to people outside the exempt circle needs to account for it.
Why this is a planning question. For a married couple, much of this tax is avoidable with ordinary, well-understood tools: using both spouses' Maryland exemptions, a properly drafted marital trust, lifetime gifts made with the right assets, and coordinated beneficiary designations. Avoiding it depends on plans written for current law, and many plans in Maryland were written when the federal exemption was $1 million, $3.5 million or $5 million, under assumptions that no longer hold. The next four parts of this series cover each of those tools and the traps around them.
For now, the question is simple. Add up what you own, at today's values, including retirement accounts and life insurance. If the total is near or above $5 million, does your current plan do what you want it to under Maryland law as it stands today? If you're not sure, let's talk. Schedule your First Conversation →
General information, not tax or legal advice for your situation. Calculations are approximate and assume no prior taxable gifts.
