In January 2025, Maryland Governor Wes Moore unveiled a significant proposal that could significantly alter Maryland residents’ inheritance tax and estate tax planning strategies. His budget plan includes eliminating the state’s 10% inheritance tax, which makes Maryland one of the few states to impose such a levy. However, to offset the revenue loss, the proposal seeks to reduce the estate tax exemption from $5 million to $2 million per person (from $10 million to $4 million for married couples).
While this proposal is still subject to legislative approval, if enacted, it would expand the number of estates subject to Maryland estate tax, potentially increasing the tax burden on families and heirs. If your assets exceed $2 million, now is the time to reassess your estate plan and consider tax-saving strategies.
What could these changes mean for you, and what steps can you take to minimize your estate tax exposure?
Understanding Maryland’s Current Tax Landscape
1. The Maryland Inheritance Tax (What’s Being Eliminated)
Maryland is one of the Six states that imposes both an inheritance and an estate tax. Iowa is scheduled to phase out the tax at the end of this year. Kentucky, Nebraska, New Jersey, and Pennsylvania are the only other states with an inheritance tax and Estate Tax.
The inheritance tax is a 10% tax on the value of assets certain beneficiaries receive after a person’s death.
Immediate family members—including spouses, children, parents, and siblings—are exempt from this tax.
More distant relatives and non-family members must pay this tax when they inherit assets.
Governor Moore’s proposal eliminates the inheritance tax entirely, removing a tax that has long been a deterrent to keeping wealth in Maryland.
2. The Maryland Estate Tax (What’s Changing)
The estate tax applies to the total value of an estate before it is distributed to heirs. Under current law:
- Estates under $5 million per person are exempt from Maryland estate tax.
- Using portability, married couples can shield up to $10 million from estate taxes.
The proposal seeks to lower the estate tax exemption to $2 million per person ($4 million per couple), meaning more estates will become taxable under Maryland law.
What This Means for Your Estate Plan
If you have an estate valued at more than $2 million ($4 million for married couples), these changes could significantly impact the amount of wealth your heirs ultimately receive.
For example, an estate worth $4 million today would not pay any Maryland estate tax under current law. However, if the exemption is lowered to $2 million, that same estate would now face Maryland estate taxes on the extra $2 million.
Bottom line: Many Maryland residents not previously concerned with estate taxes must now plan carefully to reduce their estate’s tax liability.
How to Minimize the Impact of the Proposed Estate Tax Changes
1. Make Tax-Efficient Gifts During Your Lifetime
- Annual Gifting: Each year, individuals can gift up to $18,000 per recipient (as of 2024) without triggering federal gift taxes.
- Larger Lifetime Gifts: You can also use the federal lifetime gift tax exemption ($13.61 million in 2024) to transfer assets out of your estate.
2. Use Irrevocable Trusts
- Transferring assets into irrevocable trusts can remove them from your taxable estate, reducing estate tax exposure.
- Specialized trusts, such as GRATs (Grantor Retained Annuity Trusts) and ILITs (Irrevocable Life Insurance Trusts), can help shield assets from taxation.
3. Take Advantage of Spousal Exemptions & Portability
- Married couples should ensure their estate plan correctly uses the new lower estate tax exemptions.
- Properly structuring your estate plan to utilize both spouses’ exemptions fully can shield more of your wealth from estate taxes.
4. Charitable Giving to Reduce Tax Liability
- Leaving assets to charitable organizations can help reduce your estate’s taxable value while supporting causes you care about.
- Options like charitable remainder trusts (CRTs) allow you to provide for beneficiaries while benefiting charities and lowering estate taxes.
5. Review Your Estate Plan and Revocable Trusts
- Estate plans created when the exemption was $5 million may no longer be optimized under a $2 million exemption.
- Revise wills, trusts, and beneficiary designations to ensure they align with these potential changes.
Will This Proposal Become Law?
Governor Moore’s tax proposal is part of his broader 2026 budget plan, and it still needs approval from the Maryland General Assembly.
While the elimination of the inheritance tax may be widely supported, the proposed estate tax exemption reduction could face pushback from residents and business owners.
If you have an estate that exceeds $2 million, it’s crucial to stay informed, prepare for potential changes, and take action before laws go into effect.
Stay Alert: We’ll Keep You Updated
While this proposal has yet to become law, it’s clear that estate tax planning in Maryland is entering a new era.
To stay informed about legislative updates, potential tax-saving strategies, and educational programs, we will be offering once the law is settled, subscribe to our newsletter.
We will closely monitor this situation and offer future blog articles, webinars, and client advisory programs to ensure you are fully prepared for these potential changes.
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Reference: Washington Post: Gov Wes Moore reveals plan for budget cuts, tax changes in Maryland, Jan 16, 2025
