The Maryland inheritance tax is a flat 10% charge on property inherited by people outside the deceased’s close family. Spouses, children, grandchildren, parents, siblings, and their spouses pay nothing. Nieces, nephews, cousins, friends, and unmarried partners who never registered a domestic partnership pay the full rate on what they receive. The tax runs on “clear value,” meaning fair market value after debts and administration costs come out, so the number you multiply by 10% is often smaller than the sticker value of the property.
Who Pays Nothing
Under Tax-General § 7-203, the following relatives inherit free of Maryland inheritance tax:1Maryland General Assembly. Maryland Code Tax – General 7-203 – Exemptions
- Spouses
- Children and stepchildren, including former stepchildren
- Grandchildren, great-grandchildren, and other lineal descendants
- Parents and stepparents, including former stepparents
- Siblings and half-siblings
- Spouses of children or lineal descendants, including the surviving spouse of a deceased child
The line is drawn at blood, adoption, stepchildren, and stepparents. Step-siblings and in-laws are not exempt. A bequest to your brother pays zero tax; a bequest to your brother-in-law is taxed at 10%.
Property that moves through a small estate proceeding is also exempt regardless of who inherits it.2Maryland Register of Wills. Inheritance Tax That keeps modest estates out of the tax entirely.
Domestic Partners
A domestic partnership registered under § 2-214 of the Estates and Trusts Article gets the same full spousal exemption on all property.1Maryland General Assembly. Maryland Code Tax – General 7-203 – Exemptions Unregistered partners get a narrower version: the exemption covers only an interest in a joint primary residence, and only if the survivor can prove the relationship. Valid proof is either a notarized Affidavit of Domestic Partnership signed by both partners before the death, or any two of the following: a joint mortgage or lease, designation as primary beneficiary on the other’s life insurance or retirement plan, a joint checking account, joint car ownership, healthcare powers of attorney granted to each other, or similar records of shared financial life.3Maryland Registers of Wills. Informational Guide – Domestic Partner Inheritance Tax Exemption Anything beyond the shared home, such as bank accounts or a second property, stays taxable for unregistered partners.
Charities
A § 501(c)(3) organization can receive a Maryland bequest tax-free, but the statute layers geographic conditions on top of federal status. The charity must be incorporated in Maryland, conduct a substantial part of its activities in Maryland or the District of Columbia, or have its principal place of business in a state that either does not tax similar transfers or offers Maryland a reciprocal exemption.1Maryland General Assembly. Maryland Code Tax – General 7-203 – Exemptions Most major national charities clear that bar; a small foreign nonprofit may not.
Who Pays the 10%
Every beneficiary not on the exempt list pays a flat 10% on the clear value of what they inherit.4Maryland General Assembly. Maryland Code Tax-General 7-204 – Inheritance Tax Rate The typical taxable beneficiaries are nieces, nephews, cousins, friends, unmarried partners without a registered partnership, business partners, and unrelated caregivers.
The tax runs on each individual share, not on the estate as a whole. If a decedent leaves $100,000 to a nephew and $50,000 to a friend, the nephew’s share generates $10,000 in tax and the friend’s share generates $5,000, before any deductions that reduce clear value. The personal representative usually pays the tax from estate assets before distributing the balance, but if the distributor fails to pay, the statute makes the recipient liable.5Maryland General Assembly. Maryland Code Tax – General 7-216
What Property Is Taxed
The tax reaches well past what passes through the will. The Register of Wills identifies four broad categories:2Maryland Register of Wills. Inheritance Tax
- Property passing by will or intestacy: real estate, cash, stocks, vehicles, and tangible personal property distributed through probate.
- Jointly held property, including bank and credit union accounts. When one joint owner dies, the survivor’s inherited share is taxable unless the survivor is an exempt beneficiary.
- Transfers made within two years before death, where the transfer resembled a final disposition rather than a genuine sale.
- Property the decedent still controlled at death, including revocable trusts, payable-on-death accounts, annuities, pension benefits taxable for federal estate tax purposes, and life estates.
Property passing into a trust can still ride the family exemption if all trust beneficiaries are exempt relatives. The Register looks through the trust to identify the actual recipients.
Life Insurance
Life insurance proceeds payable to a named beneficiary other than the estate itself are completely exempt, regardless of who the beneficiary is.1Maryland General Assembly. Maryland Code Tax – General 7-203 – Exemptions A $500,000 policy payable to a friend generates no Maryland inheritance tax. Name the estate as beneficiary, however, and the proceeds lose that protection and become taxable like any other asset.
How Clear Value Lowers the Bill
The 10% rate applies to clear value: fair market value minus expenses.4Maryland General Assembly. Maryland Code Tax-General 7-204 – Inheritance Tax Rate Expenses include debts attached to the property, such as a mortgage balance, and the costs of administering the estate.
Common deductions include funeral and burial expenses (capped at $15,000 unless a court approves a higher amount for a solvent estate), attorney’s fees, appraisal fees, court costs, personal representative commissions, and the property’s share of any federal estate tax.6Maryland General Assembly. Maryland Code Estates and Trusts 8-106 – Funeral Expenses
A concrete example: a nephew inherits a house appraised at $300,000 with a $120,000 mortgage balance and $8,000 in administration costs charged against that property. Clear value is $172,000. The inheritance tax is $17,200, not $30,000.
Non-Resident Decedents
Maryland’s tax reaches property physically located in the state even when the deceased lived elsewhere. Real estate in Maryland owned by a non-resident triggers the 10% tax for a non-exempt beneficiary. Personal property of a non-resident is generally exempt, with one exception: tangible personal property physically present in Maryland at the time of death remains taxable.2Maryland Register of Wills. Inheritance Tax
A non-resident’s Maryland vacation home triggers the tax; their out-of-state bank accounts and investment portfolios do not. Artwork, vehicles, or equipment kept at the Maryland property would be taxable.
How This Differs From Maryland’s Estate Tax
Maryland imposes a separate estate tax on top of the inheritance tax, and the same estate can face both. The estate tax runs against the total taxable estate and is paid by the estate, not by individual beneficiaries. The current exemption is $5 million per individual, with portability for a surviving spouse to pick up any unused portion, and the maximum rate is 16%.7Maryland General Assembly. Fiscal and Policy Note for Senate Bill 704 The inheritance tax has no such exemption threshold for non-exempt beneficiaries. It applies to the first dollar.
The two taxes interact. Inheritance tax paid can reduce estate tax liability and generate a refund from the Comptroller; if an inheritance tax refund increases estate tax owed, the Register of Wills can redirect the refund to the Comptroller.8Comptroller of Maryland. Estate and Inheritance Tax Information For estates above $5 million with collateral beneficiaries, coordinating the two is one of the harder parts of Maryland probate.
Filing, Payment, and Enforcement
Even when no tax is owed, the personal representative must report property and beneficiaries so the Register of Wills can confirm the exemption. Two forms do most of the work.
The Information Report (Form RW1124) lists property that passes outside the probate estate: jointly held real and personal property, transfers within two years of death, trust interests, payable-on-death accounts, annuities, and pension benefits. The representative identifies each beneficiary’s relationship to the decedent so the Register can apply the exemption or the 10% rate.9Maryland Register of Wills. Information Report
The Application to Fix Inheritance Tax on Non-Probate Assets (Form RW1125) is used when that non-probate property is taxable. It requires a description of the property, the nature of each party’s interest, and the market value at the date of death, with appraisals attached to support the figures.10Maryland Register of Wills. Application to Fix Inheritance Tax on Non-Probate Assets Both forms are filed with the Register of Wills in the county where the decedent lived, and any property located in Maryland must be reported regardless of the decedent’s residence.
The tax on probate property must be paid before the property is distributed. The person distributing the property is personally liable until it is paid; if the distributor does not pay, liability shifts to the recipient.5Maryland General Assembly. Maryland Code Tax – General 7-216 If the will does not name a source for the tax, or the named source is insufficient, the court can order property sold to cover it. Late payments accrue interest, and unpaid inheritance tax creates a lien on the inherited property that runs 20 years from the date of distribution.
For personal representatives, this makes inheritance tax a priority expense. Distributing to collateral beneficiaries before settling the bill creates personal exposure and can cloud title on real property for years.
Reduced Valuation for Farmland, Woodland, and Historic Property
Qualified farmland, woodland, and properties listed on the National Register of Historic Places can be assessed at current-use value rather than full fair market value, which can significantly reduce the inheritance tax.
The trade-off is a 15-year clawback. If the property stops qualifying within 15 years of the decedent’s death, the difference between the tax paid and the tax that would have applied at full value comes due immediately. Farmland and woodland lose the treatment when they no longer meet assessment standards under the Tax-Property Article; historic property loses it when removed from the National Register.11Maryland General Assembly. Maryland Code Tax – General 7-221 Whoever owns the property when the disqualifying event happens owes the additional tax, even if that owner was not the original inheritor. Families inheriting a working farm or historic property should weigh the upfront savings against the risk of a large bill later if plans for the property change.