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A couple in Bethesda assumes they’re nowhere near needing serious estate planning. Their kids are grown, the mortgage is mostly paid, the federal estate tax exemption sits at $15 million per person, and they’re nowhere close. Then they actually add up what they own. A house worth $1.6 million. Two TSP and 401(k) accounts totaling $2.8 million. A second home at the beach. Life insurance policies they own outright. A small consulting LLC. Suddenly the number is $6.8 million, and the federal exemption is no longer the problem. Maryland’s $5 million estate tax exemption is. The team at Grant, Riffkin & Strauss, P.C. sees this conversation play out regularly with Montgomery County families who walked in confident they had nothing to plan for.
Maryland is one of only twelve states that levies its own estate tax, and the only state in the country that imposes both an estate tax and a separate inheritance tax. The state exemption has been frozen at $5 million since 2019 and is not indexed for inflation. While the federal threshold climbs, Maryland’s stays put. The math gets uglier every year as homes appreciate and retirement accounts grow.
How Quietly Montgomery County Estates Cross $5 Million
The reason families miss this is that the gross estate Maryland uses for the calculation is broader than most people picture. It includes:
- The full value of your primary residence, before subtracting any mortgage
- Retirement accounts, including TSP, 401(k), 403(b), and IRAs
- The death benefit on life insurance policies you own (not just the cash value)
- Vested federal benefits, deferred compensation, and stock options
- Your share of jointly owned real estate and brokerage accounts
- Assets held in revocable living trusts (these avoid probate, not estate tax)
- Closely held business interests and LLC membership stakes
Run those numbers honestly on a dual-income household in Potomac, Chevy Chase, or North Bethesda where one spouse worked thirty years for the federal government and the other built a professional practice, and $5 million arrives without a yacht in sight.
A Maryland estate of $8 million owes roughly $480,000 in state estate tax on the $3 million above the threshold, calculated at the top 16 percent rate. That’s money the executor has to find before the kids see anything, and most families don’t have it sitting in liquid form.
The Inheritance Tax Most Marylanders Forget About
The estate tax hits the estate. The inheritance tax hits the recipient, and it’s a separate 10 percent imposed on the value of property passing to anyone who isn’t on a short exempt list. Spouses are exempt. So are children, grandchildren, parents, siblings, and stepchildren. Almost everyone else pays.
That means a niece, a nephew, a cousin, a longtime unmarried partner, a godchild, or a close friend who inherits a $300,000 IRA pays $30,000 to the state of Maryland before they receive it. Couples without children who plan to leave assets to nieces and nephews are the most common audience for this surprise. So are people in committed long-term relationships who never married. The inheritance tax doesn’t care about your relationship history. It cares about the table in the statute.
Why Portability Won’t Bail You Out by Itself
Maryland does allow portability of a deceased spouse’s unused exemption, but only when the surviving spouse files a timely Maryland estate tax return making the election. Skip the filing and the first spouse’s $5 million exemption disappears forever, even if their estate owed no tax at the time. The administrative cost of filing the return is trivial compared to the eight hundred thousand dollars or more in tax that election preserves down the road.
Even with portability captured, a couple worth more than $10 million still has work to do.
What Grant, Riffkin & Strauss, P.C. Looks at Before Recommending a Plan
Maryland-specific estate planning is layered. There’s the federal calculation, the Maryland estate tax calculation, the inheritance tax exposure for specific beneficiaries, the question of which assets are best gifted during life, and the issue of business succession when one of the assets is an operating company.
The questions that drive the actual plan:
What’s the current gross estate, valued the way Maryland will value it, including life insurance death benefits and jointly held property?
Who are the beneficiaries, and which of them are exempt from the 10 percent inheritance tax versus subject to it?
Is the marriage’s first-spouse-to-die plan structured to capture portability, or does it accidentally waste the exemption by leaving everything outright to the survivor?
Are there closely held business interests where a forced sale to pay tax would be catastrophic, and if so, do strategies like an installment sale to an intentionally defective grantor trust or a credit shelter trust make sense?
Maryland imposes no state gift tax, which makes lifetime gifting one of the most underused tools in the toolkit. The federal annual gift exclusion is $19,000 per recipient in 2026, and a married couple can move $38,000 per recipient per year without touching anyone’s lifetime exemption. Done consistently across children and grandchildren, that compounds quickly.
Irrevocable life insurance trusts remove policy proceeds from the taxable estate. Spousal lifetime access trusts let one spouse remove assets from their own estate while preserving indirect access through the other. Charitable lead trusts and donor-advised funds work for families with philanthropic goals. None of these is a one-size answer, and the wrong tool used aggressively creates worse problems than no planning at all.
Don’t Wait for Annapolis to Fix It
Bills get introduced in the General Assembly almost every session to either lower the Maryland exemption to $2 million or raise it to match the federal number. House Bill 1153 and similar proposals have moved in both directions. Planning around what the legislature might do is a losing strategy. Plan around what the law says today, and adjust when it actually changes.
If your gross estate is anywhere north of $4 million, or trending that way as retirement accounts and Montgomery County real estate continue to appreciate, the conversation is worth having now rather than after a triggering event. The attorneys at Grant, Riffkin & Strauss, P.C. work with Rockville, Bethesda, and Montgomery County families on exactly these questions, coordinating estate plans, business succession structures, and lifetime gifting strategies built for Maryland’s specific rules. Reach out to schedule a consultation before the next valuation date pushes you further into the trap.
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