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Understanding Maryland Estate Tax Exemption for 2025
Estate planning can be complex, and understanding the nuances of state-specific laws is critical for effective financial planning. For residents of Maryland, the estate tax exemption has been a significant consideration since it was set at $5 million in 2019. This exemption remains unchanged for 2025, providing stability for individuals planning their estates.
By grasping the details of Maryland’s estate tax laws, residents can make informed decisions that minimize potential tax liabilities and ensure their assets are distributed according to their wishes. This blog explores the Maryland estate tax exemption, its implications, and strategies for effective estate planning.
What Is the Maryland Estate Tax?
The Maryland estate tax is a state-level tax imposed on the transfer of assets upon death, unlike the federal estate tax, which applies to estates exceeding $13.99 million in 2025. Maryland sets its exemption threshold at $5 million. Estates valued above this threshold may be subject to Maryland’s estate tax, which operates on a graduated scale ranging from 0.8% to 16% of the taxable estate value (Tax Foundation, 2024).
Key Features of the Maryland Estate Tax
- Exemption Amount: $5 million (fixed since 2019 and continuing through 2025).
- Tax Rate: Graduated, up to 16% for estates significantly exceeding the exemption amount.
- Portability: Maryland allows for the transfer of any unused estate tax exemption from a deceased spouse to the surviving spouse under certain conditions (Maryland Taxes, 2024).
To understand how the Maryland estate tax may impact your estate, it’s important to evaluate the total value of your assets, including real estate, investments, and personal property.
What Is Portability?
Portability allows a surviving spouse to inherit any unused portion of their deceased spouse’s estate tax exemption, effectively doubling the estate tax exemption for married couples. In Maryland, this can increase the exemption to $10 million if properly elected. To claim portability, a timely estate tax return must be filed, even if the estate’s total value does not exceed the exemption threshold (Maryland Taxes, 2024).
Benefits of Portability
- Increased Exemption for Married Couples: Allows spouses to maximize their exemption potential.
- Reduced Tax Burden: Minimizes estate tax liability for surviving spouses and heirs.
For detailed guidance on electing portability, consult resources such as Maryland’s Estate Tax Guidelines.
Planning Strategies to Maximize the Maryland Estate Tax Exemption
1. Lifetime Gifting
One strategy to reduce your taxable estate is making lifetime gifts. In 2025, you can gift up to $19,000 per recipient annually without incurring federal gift tax (IRS.gov, 2024). Maryland residents benefit further as the state has no gift tax, allowing transfers without affecting the estate tax exemption.
While Maryland has no gift tax, federal laws still apply. For 2025, the annual exclusion is $19,000 per recipient, up from $18,000 in 2024. Gifts exceeding this amount may require filing a gift tax return and count against your lifetime exemption.
For more detailed guidance, refer to the Maryland Taxes: Estate and Inheritance Tax page.
2. Irrevocable Trusts
Establishing an irrevocable trust can help remove assets from your taxable estate while providing financial benefits to your heirs. Trusts such as irrevocable life insurance trusts (ILITs) or grantor retained annuity trusts (GRATs) are commonly used in estate planning to mitigate tax liability.
3. Charitable Giving
Donating to charitable organizations not only supports causes you care about but also reduces the size of your taxable estate. Maryland residents may deduct charitable contributions from their estate’s value, lowering the potential tax burden.
Maryland Inheritance Tax: A Related Consideration
In addition to the estate tax, Maryland also imposes an inheritance tax. This tax applies to certain heirs and beneficiaries who are not closely related to the deceased. The inheritance tax rate is 10% and applies to the value of property passing to individuals such as friends, distant relatives, or business associates. However, immediate family members, including spouses, children, and siblings, are generally exempt from this tax (Maryland Taxes, 2024).
Understanding both the estate and inheritance tax systems is essential for comprehensive estate planning.
Federal and Maryland Estate Tax: Key Differences
While the federal estate tax exemption is significantly higher than Maryland’s—$13.99 million in 2025—it’s crucial to plan for both taxes when applicable. Federal and state estate taxes are calculated independently, meaning estates exceeding the Maryland threshold but below the federal exemption may still owe state-level taxes.
Why the $5 Million Exemption Matters
The Maryland Estate Tax Exemption of $5 million offers predictability for Maryland residents planning their estates. By maintaining this threshold through 2025, individuals and families can implement long-term strategies without fear of sudden changes in state law. However, because laws and thresholds may change in the future, staying informed is critical.
Factors to Consider
- Asset Growth: Appreciation of property or investments could push estates above the exemption threshold.
- Family Dynamics: Changes in marital status, births, or deaths may affect your estate plan.
- Legislative Updates: Monitor for changes in Maryland tax laws that could impact planning.
Conclusion
Maryland’s estate tax exemption of $5 million offers clarity and opportunities for effective estate planning. Understanding how this exemption interacts with other tax considerations, such as federal estate tax and Maryland’s inheritance tax, is vital for ensuring your estate is managed according to your wishes. By leveraging strategies like lifetime gifting, trusts, and charitable giving, you can minimize tax liabilities and preserve wealth for future generations.
However, estate planning is just one aspect of comprehensive financial management. Walsh & Company is here to assist individuals and families in navigating Maryland’s tax laws with ease and confidence. Whether it’s estate administration, trust administration, tax planning, or tax preparation, our experienced team is ready to craft a comprehensive plan tailored to your unique needs. Let us help you secure your legacy and achieve peace of mind.
References
- Maryland Department of Taxes. “Estate and Inheritance Tax.” Maryland Taxes. https://marylandtaxes.gov/individual/estate-inheritance/estate-inheritance-tax.php.
- Tax Foundation. “State Estate and Inheritance Taxes.” Tax Foundation. https://taxfoundation.org/data/all/state/estate-inheritance-taxes/.
- Maryland State Archives. “State Taxes.” Maryland State Archives. https://registers.maryland.gov/main/taxes.html.
- Internal Revenue Service. “Frequently Asked Questions on Gift Taxes.” IRS. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes.
- Internal Revenue Service. “Estate Tax.” IRS. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax.
- Internal Revenue Service. “IRS Releases Tax Inflation Adjustments for Tax Year 2025.” IRS. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025.