Estate Planning in Maryland: What the Dual-Tax State Requires

Maryland is the only state in the country that imposes both a state estate tax and a state inheritance tax. That fact alone makes estate planning here more involved than in the 44 states that impose neither.

The estate tax hits estates valued above $5 million with graduated rates up to 16%. The inheritance tax is a flat 10% on transfers to non-lineal heirs — nieces, nephews, cousins, friends, and unmarried partners. Close family members (spouses, children, parents, siblings, grandparents) are exempt from the inheritance tax.

A plan that ignores either tax can leave your family with a bill they didn't expect.

The Five Core Documents

Every Maryland estate plan needs these five documents at minimum:

1. Last Will and Testament. Maryland requires two witnesses for a valid will. The state does not recognize oral, audio, or video wills under any circumstances. Self-proving affidavits are accepted and speed up the probate process by eliminating the need to locate witnesses later.

2. Financial Power of Attorney. Maryland's statutory form (ET § 17-202) covers banking, real estate transactions, tax filing, and government benefits. A durable power of attorney remains effective if you become incapacitated — without the "durable" designation, it terminates upon incapacity, which is exactly when you need it most.

3. Advance Health Care Directive. This combines a living will (your treatment preferences) with a healthcare power of attorney (who makes decisions when you can't). Maryland's official form is available through the Office of the Attorney General.

4. Beneficiary Designations. Life insurance policies, retirement accounts (401k, IRA), and Payable-on-Death bank accounts all transfer directly to named beneficiaries outside probate. These designations override your will — if your will says one thing and the beneficiary form says another, the beneficiary form wins.

5. Property Transfer Documents. For real estate, Maryland now offers Transfer-on-Death deeds (effective October 1, 2026), life estate deeds, and joint tenancy arrangements. For vehicles, the MVA accepts TOD designations through Form VR-471.

What Makes Maryland Different

The dual-tax trap. Leaving assets to a niece or nephew? They'll owe 10% inheritance tax on everything they receive, regardless of the estate's total value. If the estate also exceeds $5 million, the estate tax kicks in on top — though Maryland does allow a dollar-for-dollar credit for inheritance tax paid against the estate tax liability.

Common law property. Maryland is not a community property state. Assets belong to whoever holds the title. A house titled solely in one spouse's name doesn't automatically belong to the surviving spouse — it becomes a probate asset unless there's a beneficiary designation, joint tenancy, or TOD deed.

The elective share. Maryland's elective share law (effective October 2020) lets a surviving spouse claim one-third of the "augmented estate" if descendants survive, or one-half if there are none. The augmented estate reaches into revocable trusts, joint accounts, and lifetime transfers made without spousal consent. You cannot fully disinherit a spouse through clever titling alone.

Medicaid recovery is probate-only. The Maryland Department of Health can recover long-term care costs only from probate assets. Assets in revocable trusts, joint accounts, and TOD-designated property are currently protected from Medicaid estate recovery — making probate avoidance doubly valuable for families with Medicaid exposure.

Common Mistakes

Adding children to the deed. This gives them immediate ownership, exposes the property to their creditors, and can trigger gift tax reporting. A TOD deed or life estate deed accomplishes the same probate avoidance without these risks.

Ignoring the 60-month Medicaid look-back. Transferring assets to qualify for Medicaid long-term care? Maryland enforces a strict 60-month look-back period. Transfers made within that window create a penalty period of Medicaid ineligibility.

Forgetting non-probate assets on the Information Report. The Register of Wills requires Form 1124, which reports non-probate assets (joint accounts, trusts, lifetime transfers within two years of death) that may still be subject to inheritance tax. Failing to file it can trigger penalties and interest.

What a Basic Plan Costs

Maryland attorneys typically charge $700 to $1,200 for a basic wills package and $1,700 to $3,000 for a trust-based plan. Online services like LegalZoom charge $99 to $249 for wills but often lack Maryland-specific guidance on the dual-tax system and TOD deed requirements.

The Maryland Estate Planning Kit provides the complete document workflow — asset inventory worksheets, beneficiary audit tools, TOD deed checklists, and a dual-tax reference guide — structured specifically around Maryland's requirements.

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