When the One Big Beautiful Bill Act was signed into law on July 4, 2025, it made permanent a federal estate tax exemption of $15 million per individual — $30 million for a married couple — indexed for inflation going forward. For most Americans, that number is so large that federal estate tax ceased to be a practical concern. The news coverage that followed largely said as much.
If you live in Maryland, the story is more complicated. And understanding the difference matters.
The Federal Picture
The federal estate tax applies to the taxable estate of a deceased person — the value of everything they owned at death, reduced by allowable deductions, above the exemption threshold. At $15 million per person, the vast majority of Americans are nowhere near federal estate tax exposure. A married couple with a combined estate of $29 million, planning carefully, can pass everything to the next generation with zero federal estate tax. The portability election, which allows a surviving spouse to use the deceased spouse’s unused federal exemption, makes this planning accessible without complex trust structures in many cases.
The $15 million exemption is also indexed for inflation, which means it will grow over time. Congress has, for now, removed the sunset risk that had hung over estate planning since the Tax Cuts and Jobs Act of 2017. For federal purposes, the planning environment is stable and the thresholds are generous.
Maryland’s Separate and Significantly Lower Threshold
Maryland imposes its own estate tax, entirely separate from the federal system, with an exemption of $5 million per individual. For a married couple using the portability election on the first spouse’s Maryland estate tax return, the effective combined exemption is $10 million. That threshold has been unchanged since 2019 and, unlike the federal exemption, is not indexed for inflation — meaning its real value erodes a little each year as the cost of living rises.
The practical consequence is significant. A Maryland resident with an estate of $8 million owes zero federal estate tax — comfortably below the $15 million threshold — but faces a Maryland estate tax bill on the $3 million above the state’s $5 million exemption. Maryland’s estate tax rates are graduated, starting at 0.8% and climbing to a maximum of 16% on the largest estates. For a taxable Maryland estate in the range of a few million dollars above the exemption, the tax owed can easily reach six figures.
This gap — $10 million between the federal exemption and the Maryland exemption for a married couple — is the planning space that Maryland families cannot ignore, even in an environment where federal estate tax has become largely irrelevant for most people.
The Proposal That Didn’t Pass — And Why It Still Matters
In January 2025, Governor Moore proposed reducing Maryland’s estate tax exemption from $5 million to $2 million per person as part of a broader budget reform package. The Maryland General Assembly rejected that proposal when the 2025 legislative session ended in April. The exemption remains at $5 million.
The fact that the proposal was made — and that it came close enough to require legislative action to defeat — is itself a planning signal. Maryland’s estate tax policy is not static. A future legislature could revisit the question. The exemption is not indexed for inflation and has not increased in seven years. Families whose estates are growing toward the $5 million threshold have reason to plan now rather than assume the current rules will hold indefinitely.
Maryland’s Inheritance Tax: The Other Layer
Maryland is the only state that imposes both an estate tax and a separate inheritance tax. The inheritance tax — which Governor Moore also proposed to eliminate, a proposal that was likewise rejected — is a 10% tax on property passing to certain beneficiaries based on their relationship to the deceased.
Close family members are exempt: spouses, children, grandchildren, parents, grandparents, and siblings pay no Maryland inheritance tax. But more distant relatives — nieces, nephews, cousins, friends, unmarried partners — are subject to the 10% rate on what they receive. For families who intend to leave assets to people outside the immediate family, this is a meaningful consideration that a well-structured plan can address.
What Maryland Families Can Do
There is a meaningful planning advantage that Maryland offers and that is easy to overlook: Maryland imposes no state-level gift tax. Lifetime gifting — transferring assets to family members during your lifetime — reduces the size of your taxable estate without any Maryland tax consequence. The federal annual gift tax exclusion for 2026 is $19,000 per recipient, or $38,000 for married couples giving jointly. Consistent gifting over time can move meaningful assets out of a taxable estate without touching the federal lifetime exemption.
For estates approaching or above Maryland’s $5 million threshold, additional strategies — irrevocable trusts, charitable planning, life insurance held in trust — can reduce taxable exposure in ways that a revocable living trust alone cannot accomplish. The right approach depends on the size and composition of the estate, the family structure, and goals that go beyond tax minimization.
The most important first step is simply understanding where you stand. Many Maryland families are surprised to learn that the federal headlines don’t tell the whole story — and that their estate has meaningful Maryland exposure even when federal tax is not a concern at all. If you haven’t reviewed your plan with the current state and federal thresholds in mind, this fall is a good time to do so.
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