Maryland collects an inheritance tax when certain recipients inherit property from someone who lived in Maryland or owned property there. Close relatives and charities are exempt from the tax; other inheritors pay the tax at a 10% rate.
Inheritance Tax Exemptions
There are many exemptions to Maryland’s inheritance tax. The inheritance tax does not apply when property is inherited by the deceased person’s:
- child (biological or legally adopted), stepchild, former stepchild, grandchild, or other lineal descendant
- parent (including stepparent or former stepparent)
- grandparent, or
- brother or sister.
The law also exempts these beneficiaries from tax:
- the spouse of a child, grandchild, or other lineal descendant of the deceased person
- the surviving spouse of a deceased child (or other lineal descendant) of the deceased person, if the surviving spouse has not remarried
- a business (corporation, partnership, or limited liability company) if all of its owners (stockholders, partners, or members) are exempt
- Maryland nonprofit organizations that have tax-exempt status under section 501(c)(3) of the Internal Revenue Code
- other nonprofits, depending on the inheritance tax laws of the states where they are organized.
And that isn’t even the entire list of exemptions. No tax is imposed on the transfer of:
- the proceeds of a life insurance policy that go to a named insured (not to the estate)
- inheritances of less than $1,000
- amounts the deceased person received as compensation for Holocaust-related losses
- the deceased person’s primary residence, if it was owned by the deceased person and his or her registered domestic partner as joint tenants
Finally, if the estate qualifies for simplified probate as a small estate under Maryland law (the total value of all probate property must be less than $30,000), there is no inheritance tax due.
Gifts Made Before Death
Some gifts are subject to Maryland inheritance tax even if they're made while you're alive. Gifts made "in contemplation of death"--so-called "deathbed gifts" are subject to the tax. So are gifts of a "material part" of your property made within two years of your death. (Md. Code Ann. [Tax-Gen] section 7-201.)
How Much Tax Is Due
The Maryland inheritance tax is 10% of the “clear value” of the inherited property. Clear value means the fair market value of the property, less certain expenses. The personal representative must file an inventory (either with the probate court or, if there is no formal administration of the estate, with the county register) of the deceased person’s property.
Based on the inventory, the county register calculates the amount of inheritance tax owed and notifies the personal representative. The personal representative must pay the tax before distributing the property to the people who inherit it; if the personal representative doesn't pay it, it's up to the recipient. If there’s no formal probate court proceeding, the county register in the county where the deceased person lived or owned property sends a bill to each person responsible for paying the tax.
Installment payments. If the inheritors would have to sell a small business they inherited from the deceased person in order to pay the inheritance tax, they may be able to make the tax payments over an extended period, up to five years.
For information about inheritance tax, check the Maryland Comptroller’s website.