INHERITANCE TAX

The inheritance tax is a tax imposed on the privilege of receiving property from a decedent. Below is a detailed guide to the types of property that are subject to the tax and those that are exempt, the individuals and entities subject to the tax and those who are exempt, and procedures for the payment of the inheritance tax.

1. PROPERTY SUBJECT TO INHERITANCE TAX

• Property passing by Will or under the laws of intestacy.
• Any interest as a joint owner in any real or personal property, including credit union, bank, or other financial institution accounts.
• A material part of the decedent's property transferred by the decedent within two years of death (other than a bona fide sale) in the nature of a final disposition or distribution, including any transfer that resulted in joint ownership of property, if the transfer is made in contemplation of death.
• Property over which the decedent retained any dominion at the time of death, including a beneficial interest, a power of revocation, or a power of appointment by Will or otherwise. This includes trusts, P.O.D. accounts, annuities or other public or private employee pension or benefit plans that are taxable for federal estate tax purposes, life estates and other interests less than absolute, in trust or otherwise.

EXEMPTIONS FROM INHERITANCE TAX

• Life insurance benefits payable to a named beneficiary, other than the estate of the decedent.
• Grave maintenance up to $500 passing under a Will for perpetual upkeep.
• Property administered under a Small Estate proceeding.
• Property passing to any one person not exceeding a total of $1,000.
• Personal property of a non-resident with the exception of tangible property located in Maryland.
• Income, including gains and losses, accrued on probate assets after the date of death of decedent. However, it is reportable to the State of Maryland as estate income.
• Real property subject to perpetual conservation easement. (See Tax-General §7-203(m), effective 10/1/2019).

2. INDIVIDUALS AND ENTITIES SUBJECT TO INHERITANCE TAX

Spouse and Direct or Lineal Heirs

For decedents dying on or after July 1, 2000, direct or lineal heirs are exempt from inheritance tax. This includes a spouse, child, grandchild, great-grandchild, stepchild, parent, or grandparent.

For decedents dying prior to July 1, 2020, see the effective tax rates below:

NOTE: For decedents dying between July 1, 1985, and June 30, 2000, a surviving spouse pays no tax on any amount of real estate and up to $100,000 of personalty. (See Tax-General §7-203(J)).

Domestic Partners

For decedents dying on or after October 1, 2023, a surviving registered domestic partner is exempt from inheritance tax. (See Tax-General §7-203-l(3)).

For decedents dying on or after July 1, 2009, a surviving domestic partner is subject to inheritance tax on all property except for the decedent and surviving partner’s primary residence if jointly held with a right of survivorship. The surviving partner must provide an Affidavit of Domestic Partnership or two proofs of partnership to qualify for this exemption. (See Tax-General §7-203-l(2)).

Collateral Heirs

Collateral heirs are subject to inheritance tax. This includes a niece, nephew, aunt, uncle, or cousin.

NOTE: For decedents dying on or after July 1, 2000, a decedent’s sibling and the spouse of a decedent’s child are exempt from inheritance tax.

Friends and Other Individuals with No Blood Relationship to the Decedent

Friends and other individuals not related by blood to the decedent are subject to inheritance tax at the same rate as collateral heirs. Exceptions include individuals named above, including a spouse, registered domestic partner, domestic partner (limited exemption for real property), a spouse of a child, or a stepchild.

Other Beneficiaries

Any organization that is exempt from taxation under §501(c)(3) of the Internal Revenue Code is exempt from inheritance tax. Proof of an organization’s tax-exempt status may be required by the Register of Wills in order to qualify.

Any organization that is not exempt from taxation §501(c)(3) of the Internal Revenue Code is subject to inheritance tax.

A corporation whose stockholders consist only of the surviving spouse, registered domestic partner, parents, stepparents, stepchildren, brothers, sisters, and lineal descendants of the decedent and spouses of the lineal descendants is exempt from inheritance tax.

State, county, and municipal corporations are exempt from inheritance tax.

3. PROCEDURES FOR PAYMENT OF INHERITANCE TAX

The receipt of both probate and non-probate property is subject to inheritance tax. This includes property passing through a decedent’s probate estate and property passing by operation of law or contract, such as assets jointly held with the decedent and assets of the decedent with a named beneficiary subject to tax. The tax is based on the value of the property at the time of distribution.

Probate Assets

The tax on the receipt of probate property is due when the personal representative submits an Administration Account showing distribution of that property to the taxable individual or entity. The tax payment is submitted with the Account.

If the decedent died with a Last Will and Testament, the tax on the receipt of property by a legatee (those named to inherit in a Last Will and Testament) is paid either by the estate of the decedent or by the legatee. Most wills include a provision known as a “tax clause” which provides that any end-of-life taxes, like the inheritance tax, be paid from the estate rather than be paid by the legatee.

If the decedent died without a Last Will and Testament, the tax on receipt of property by an heir is paid by the inheriting heir.

Non-Probate Assets

The inheritance tax on non-probate property is due when the Register of Wills assesses and provides an invoice for the amount owed, based on the taxable property reported on the Information Report or the Application to Fix Inheritance Tax.

The Register of Wills will issue an invoice to the personal representative, if the estate is liable for the tax, or to the beneficiary, if the individual or entity is liable for the tax. If payment is not made within 30 days, a 10% penalty fee and interest will be charged, and a second invoice will be issued. If payment is not made within 60 days of the initial invoice, additional interest will be charged, and a third invoice will be issued. If payment is not made within 90 days of the initial invoice, additional interest will be charged, and the full amount owed will be sent to the Maryland Central Collection Unit (CCU). CCU will take over collection of the tax, penalty, and interest owed to the Register of Wills and may assess additional interest at a rate of up to 18%.