Understanding Estate Taxes in Maryland Probate: A Comprehensive Guide
When a loved one passes away, managing their estate can be an overwhelming process. One of the key aspects of this process is handling estate taxes during probate. Maryland’s estate tax laws are relatively complex, and understanding how they apply can help executors and beneficiaries navigate this part of the probate process more smoothly. In this blog, we’ll explore how estate taxes are handled in Maryland probate, the exemptions available, and the role of executors in ensuring tax compliance.
What is Probate?
Probate is the legal process of administering a deceased person’s estate. This process includes identifying and valuing the decedent’s assets, paying debts, and distributing the remaining assets to beneficiaries or heirs. In Maryland, probate is overseen by the Orphans' Court in the county where the decedent resided at the time of death.
Estate Taxes in Maryland: An Overview
Maryland imposes both an estate tax and an inheritance tax, both of which can affect the probate process. The estate tax is levied on the value of the decedent’s estate, while the inheritance tax applies to the individuals who inherit the estate.
1. Maryland Estate Tax
The Maryland Estate Tax applies to estates that exceed a certain value threshold. As of 2025, the Maryland estate tax exemption is $5 million. This means that if the decedent’s estate is valued below $5 million, no Maryland estate tax will be owed. However, if the estate is valued above this threshold, estate taxes will be assessed on the value exceeding $5 million.
The Maryland estate tax rate varies depending on the value of the estate. It is a progressive tax that ranges from 0.8% to 16% based on the value of the estate. The tax is calculated after subtracting the estate’s deductions, such as debts, funeral expenses, and other allowable costs.
For example, if the estate value is $6 million, the estate will be taxed on the $1 million that exceeds the exemption. The rate of tax applied to the excess amount will depend on its value.
2. Maryland Inheritance Tax
In addition to the estate tax, Maryland also imposes an inheritance tax on the value of property inherited by certain beneficiaries. The inheritance tax is separate from the estate tax and is typically paid by the beneficiaries, not the estate.
The inheritance tax rate depends on the relationship of the beneficiary to the decedent:
Class A beneficiaries: These include spouses, children, grandchildren, parents, and siblings. There is no inheritance tax for Class A beneficiaries.
Class B and C beneficiaries: These include more distant relatives (e.g., cousins, nieces, nephews) and non-relatives. These beneficiaries are subject to an inheritance tax rate of 10%.
Key Exemptions and Deductions
There are several exemptions and deductions available under Maryland estate tax law that can help reduce the estate's tax liability.
1. Exemption for Property Passing to a Spouse
One of the most significant exemptions available is for property passing to a surviving spouse. Maryland law exempts all property passed to a spouse from both estate and inheritance taxes. This means that no estate tax or inheritance tax will be owed on the portion of the estate passing to the surviving spouse, regardless of the estate’s value.
2. Qualified Family-Owned Business Deduction
Maryland provides a qualified family-owned business deduction, which allows certain family-owned businesses to be exempt from estate taxes. This exemption can be beneficial for family-run companies that may otherwise be burdened by estate taxes upon the death of an owner.
3. State and Local Government Bonds
Maryland also exempts bonds issued by the state of Maryland or its local governments from estate taxes. This includes bonds held by the decedent at the time of their death.
4. Marital Deduction
As with federal tax law, Maryland provides a marital deduction, which allows spouses to transfer an unlimited amount of property to each other without incurring estate taxes. This provision is particularly helpful for married couples in managing the estate tax liability of the deceased spouse.
The Role of the Executor in Handling Estate Taxes
The executor (also known as the personal representative) plays a crucial role in managing the estate’s tax obligations. The executor is responsible for ensuring that the estate taxes are filed and paid in accordance with Maryland law. Here are some of the executor's key duties regarding estate taxes:
Filing the Estate Tax Return: If the estate exceeds the exemption threshold, the executor must file an estate tax return with the Maryland Comptroller’s Office. The return must be filed within 9 months of the decedent's date of death.
Paying Estate Taxes: The estate taxes owed must be paid to the state of Maryland within the same 9-month period, although extensions may be available in certain circumstances.
Handling Inheritance Taxes: The executor must ensure that inheritance taxes are paid by the beneficiaries if applicable. For example, if the decedent leaves property to non-Class A beneficiaries, inheritance tax will be due and must be paid before the property can be distributed.
Providing Documentation: The executor must provide all required documentation, such as the estate’s value, a list of debts and expenses, and any deductions or exemptions claimed, to ensure accurate tax calculations.
Conclusion
Maryland’s estate and inheritance tax laws can be challenging, but understanding the key concepts and exemptions can help make the probate process smoother. Executors play a critical role in ensuring compliance with these tax laws, while beneficiaries must be aware of any inheritance taxes they may owe based on their relationship to the decedent.
For more detailed information or specific advice regarding Maryland estate taxes, it is highly recommended to consult with a probate attorney or a tax professional familiar with Maryland’s estate and inheritance tax laws. They can provide personalized guidance and help ensure that the estate is administered efficiently and in accordance with the law.
At Atkinson Law, we listen to all our clients and protect their interests so they can receive a positive legal outcome. We’ll work with you and give you the best possible recommendation for your future. To learn more, contact us today by calling (410) 882-9595 or visiting our website.
References:
Maryland Comptroller’s Office. "Estate Tax Information." Maryland Estate Tax Information.
Maryland Code – Tax-General § 7-301 through 7-401. Maryland Estate Tax Code.
Maryland Department of Assessments and Taxation. "Inheritance Tax." Inheritance Tax Information.