Maryland Inheritance Tax: Rates, Exemptions, and Who Pays

Most states stopped taxing inheritances decades ago. Maryland did not. If you are settling an estate here and some of the beneficiaries are nieces, nephews, cousins, or close friends, the inheritance tax is one of the first things that needs to be understood — and one of the easiest to miscalculate.

Maryland is the only state in the country that levies both an inheritance tax and a separate estate tax. They are different taxes targeting different things, and both can apply to the same estate. This post focuses on the inheritance tax: who owes it, what rate applies, which heirs are exempt, and how the Register of Wills actually collects it.

What the Maryland Inheritance Tax Is (and Is Not)

The Maryland inheritance tax is a tax on the right of a beneficiary to receive property from a decedent. It is not a tax on the estate itself — that is what the estate tax does. The inheritance tax asks a different question: what is the relationship between the person who died and the person receiving the money or property?

The flat rate is 10%, applied to the clear value of what each non-exempt beneficiary receives.

Critically, the inheritance tax is not limited to probate assets. It applies to any property passing by reason of death, including payable-on-death bank accounts, transfer-on-death investment accounts, life insurance proceeds paid to non-exempt beneficiaries, and assets held in revocable trusts. If a nephew inherits a jointly-owned savings account that passed entirely outside probate, that transfer is still reportable and still taxable.

Which Heirs Are Exempt

The exemption list is organized around direct family relationships. Property passing to the following individuals is completely exempt from the Maryland inheritance tax:

• Spouse or registered domestic partner (registered with the state under Maryland's domestic partnership law)
• Children and stepchildren, including legally adopted children
• Grandchildren and great-grandchildren
• Parents and stepparents
• Grandparents
• Siblings (including half-siblings)
• Spouses of children or grandchildren (i.e., sons-in-law and daughters-in-law)

Charitable organizations and certain qualified nonprofits are also exempt.

Everyone else — nieces, nephews, cousins, domestic partners who are not formally registered, unmarried partners, and unrelated friends — falls into the collateral heir category and pays the 10% rate.

Maryland Inheritance Tax Rate: Nieces, Nephews, and Collateral Heirs

If a decedent leaves money to a niece or nephew, the 10% rate applies to the full value transferred. There is no exemption threshold or annual exclusion the way there is with federal gift tax. It is 10% on the first dollar.

Example: An aunt dies and leaves $80,000 to her nephew and $80,000 to her daughter. The daughter pays nothing — children are exempt. The nephew owes $8,000 in Maryland inheritance tax.

The same logic applies to the decedent's cousin, a long-time partner who never formalized a domestic partnership, a close friend named in the will, or a godchild. Relationship determines liability, not the size of the bequest.

For non-probate assets, the collateral beneficiary is personally responsible for remitting the tax. The Register of Wills learns about these transfers through the Information Report (Form RW-1124), which the personal representative must file within three months of appointment. This form captures jointly titled assets, POD and TOD accounts, assets in revocable trusts, and gifts made within two years of death — specifically so the state can assess inheritance tax on collateral transfers that bypassed the probate estate.

How the Maryland Inheritance Tax Interacts with the Estate Tax

Maryland estate tax applies to estates with a gross value above $5,000,000. Most families never hit that threshold. But for those that do, there is an important offset: any inheritance tax paid by collateral heirs is deducted dollar-for-dollar from the final Maryland estate tax liability. The same property is not taxed twice in full — the inheritance tax reduces the estate tax bill.

For smaller estates, the two taxes rarely interact. The inheritance tax is the more commonly encountered burden, because it can apply to an estate worth $20,000 just as readily as one worth $2,000,000, provided a collateral heir is involved.

How the Register of Wills Collects the Tax

For probate assets, the Register of Wills calculates the inheritance tax as part of the estate administration process. Before a final distribution is approved, the Register will assess what is owed based on who receives what and their relationship to the decedent.

For non-probate assets, the process runs through the Information Report. The personal representative discloses all non-probate transfers on Form RW-1124 within three months of appointment. The Register then determines which transfers involved collateral heirs and issues a tax assessment. The beneficiary who received the non-probate asset is personally responsible for paying the assessed amount.

Failing to accurately file the Information Report is one of the more common estate administration errors. If a POD account is not disclosed and the beneficiary is a nephew, the tax still accrues — with interest — even though the funds were received directly without any court involvement.

What Personal Representatives Need to Know

As the person administering the estate, you are not personally liable for the inheritance tax owed by individual beneficiaries. But you are responsible for ensuring the Information Report is accurate and filed on time. Errors or omissions can delay closing the estate and potentially expose you to claims from the state.

A few practical points:

• The tax is assessed on the clear value received, meaning after any debts or liens allocated to that specific asset are subtracted.
• Maryland law allows a beneficiary to disclaim an inheritance. If a collateral heir formally disclaims within nine months of the date of death, the property passes to the next heir in line (who may be exempt), eliminating the tax.
• If the estate is subject to both inheritance tax and estate tax, coordinate the filings carefully. The MET-1 (estate tax return) cannot be finalized until the inheritance tax picture is clear, because the deduction only works if the inheritance tax has actually been paid.

If you are settling a Maryland estate that involves collateral heirs, the Maryland Estate Settlement Guide walks through the complete sequence from the Information Report filing through final tax clearance — including the exact forms needed and the timeline for each step.

A Note on Registered Domestic Partners

As of 2023, Maryland formally extended inheritance tax exemptions to registered domestic partners. This is the operative word: registered. Couples who have lived together for decades but never formally registered with the state under SB 792 do not qualify for the exemption. An unregistered partner who inherits is a collateral heir subject to the full 10% rate.

If the decedent and their partner were registered, the surviving partner also has rights that mirror those of a married spouse in most respects — including eligibility for the $10,000 family allowance during probate administration and exemption from the inheritance tax on assets passing to them.

Summary

Maryland inheritance tax applies to collateral heirs at a flat 10% on everything they receive. Direct family members — spouses, children, grandchildren, parents, siblings, and their spouses — are fully exempt. The tax reaches beyond the probate estate to cover non-probate transfers, which must be disclosed on the Information Report within three months of the personal representative's appointment.

If your estate involves a mix of exempt and non-exempt beneficiaries, careful planning around beneficiary designations and the formal filing of the Information Report can significantly affect how much tax is ultimately owed. For a step-by-step walkthrough of the full Maryland estate settlement process, including inheritance tax forms and deadlines, see the Maryland Estate Settlement Guide.

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