The One Big Beautiful Bill Act raised the federal estate tax exemption to $15 million per person beginning in 2026 — eliminating federal estate tax for the vast majority of American families. But Maryland has its own estate tax with a $5 million exemption and no portability between spouses. For Frederick County families with farms, real estate, or business interests, the Maryland estate tax gap is the planning issue that matters most.
The federal estate tax exemption — the amount an individual can pass to heirs free of federal estate tax — was $13.99 million per person in 2025. The OBBBA raises that to $15 million per person beginning in 2026, indexed for inflation going forward. The change is permanent under current law.
For married couples, the federal estate tax system includes portability — a surviving spouse can use the deceased spouse's unused exemption in addition to their own. A married couple can effectively pass up to $30 million to their heirs free of federal estate tax, provided the portability election is properly made on the deceased spouse's estate tax return.
The annual gift tax exclusion continues at $19,000 per recipient for 2025, adjusted annually for inflation. Gifts within the annual exclusion amount do not count against the lifetime exemption. For a full overview of OBBBA changes, see our complete OBBBA guide.
Exemption per person: $13.99M (2025) → $15M (2026+), indexed for inflation. Top federal estate tax rate: 40%. Portability: available — surviving spouse can use deceased spouse's unused exemption. Annual gift exclusion: $19,000 per recipient (2025). The $15M exemption is permanent under current law.
While the federal exemption is now $15 million, Maryland imposes its own separate estate tax with dramatically different rules. Maryland is one of only a handful of states that still has a state-level estate tax, and its exemption is among the lowest in the country.
| Feature | Federal Estate Tax | Maryland Estate Tax |
|---|---|---|
| Exemption per person | $15,000,000 (2026) | $5,000,000 |
| Portability between spouses | Yes | No |
| Top tax rate | 40% | 16% |
| Indexed for inflation | Yes | No |
| Return filing required | Form 706 (estates above exemption) | Maryland Estate Tax Return |
| Marital deduction | Unlimited | Unlimited (for Maryland residents) |
The most critical difference for Maryland families is the lack of portability. At the federal level, if a spouse dies without using their full exemption, the surviving spouse can elect to use the remaining exemption — effectively doubling the couple's combined exemption to $30 million. Maryland has no such provision. Each Maryland resident gets one $5 million exemption, period. If it is not used at death, it is lost.
The gap between the $15 million federal exemption and the $5 million Maryland exemption creates a significant planning problem for Frederick County families with estates in the $5 million to $15 million range. These families owe nothing to the federal government — but may owe substantial Maryland estate tax.
A Maryland resident who dies with a $10 million estate in 2026 owes zero federal estate tax — the entire estate is below the $15 million federal exemption. But Maryland estate tax applies to the $5 million above the Maryland exemption. At Maryland's progressive estate tax rates, the Maryland tax on that $5 million could exceed $400,000 to $500,000. This is entirely preventable with proper planning.
The families most commonly surprised by the Maryland estate tax gap are those whose wealth is concentrated in illiquid assets that have appreciated significantly:
Maryland's estate tax uses a progressive rate structure on the taxable estate — the amount above the $5 million exemption. The rates range from 0.8% on the first dollar above the exemption up to 16% on amounts above $10 million:
| Taxable Estate Amount | Maryland Estate Tax Rate |
|---|---|
| $0 – $1,000,000 above exemption | 0.8% – 4.8% |
| $1,000,001 – $2,000,000 above exemption | 4.8% – 6.4% |
| $2,000,001 – $3,000,000 above exemption | 6.4% – 8.0% |
| $3,000,001 – $5,000,000 above exemption | 8.0% – 10.0% |
| Above $5,000,000 above exemption | Up to 16% |
On a $10 million Maryland estate — $5 million above the exemption — the Maryland estate tax can exceed $400,000 to $500,000. On a $15 million estate, the Maryland tax can approach $1.2 million to $1.5 million. These are significant sums that proper planning can substantially reduce or eliminate.
The Maryland estate tax gap is significant but manageable with proactive planning. The most effective strategies for Frederick County families:
Since Maryland has no portability, married couples need to structure their estate plans to ensure both spouses' $5 million Maryland exemptions are fully utilized. A credit shelter trust (also called a bypass trust or family trust) allows the first spouse to die to fund a trust with up to $5 million — using that spouse's Maryland exemption fully — while the assets grow outside the surviving spouse's taxable estate. Without this structure, the first spouse's Maryland exemption is wasted if assets pass directly to the surviving spouse.
Each year, individuals can give up to $19,000 (2025) to each recipient free of gift tax and without affecting the lifetime exemption. A married couple can give $38,000 per recipient annually. For a family with three adult children and six grandchildren, a coordinated gifting program can transfer up to $342,000 per year out of the taxable estate — reducing both federal and Maryland estate tax exposure over time.
Life insurance proceeds are generally included in the insured's taxable estate if the insured owned the policy. An Irrevocable Life Insurance Trust (ILIT) owns the policy instead — keeping the death benefit out of the taxable estate while providing liquidity to pay Maryland estate taxes or support heirs without forcing the sale of illiquid assets like a farm or business.
A QPRT allows a homeowner to transfer their home to an irrevocable trust at a discounted gift tax value while retaining the right to live in it for a specified term. If the homeowner survives the trust term, the home passes to heirs outside the estate at the transferred value — removing significant appreciation from the taxable estate.
For Frederick County farm families, federal law allows qualifying farm property to be valued at its current use value for agricultural purposes rather than its fair market value for development. This can significantly reduce the taxable value of farmland for estate tax purposes. Maryland generally follows federal valuation rules for estate tax purposes. The special use valuation election requires the farm to continue operating as a farm for at least 10 years after the owner's death.
Maryland also imposes an inheritance tax — separate from the estate tax — on assets passing to certain beneficiaries. The inheritance tax rate is 10% and applies to assets passing to:
Assets passing to spouses, children, grandchildren, parents, and grandparents are exempt from Maryland inheritance tax. The inheritance tax is in addition to — not instead of — the Maryland estate tax, and applies regardless of the size of the estate.
For Frederick County residents who plan to leave assets to siblings, nieces, nephews, or close friends, the Maryland inheritance tax is a planning consideration that often surprises families who assumed only wealthy estates face Maryland tax issues.
We work with Frederick County families on Maryland estate tax planning — analyzing current estate values, modeling the Maryland tax exposure, and coordinating with estate planning attorneys on trust structures, gifting programs, and business succession strategies. If your estate may be approaching the $5 million Maryland threshold, or if you have not reviewed your estate plan since the OBBBA raised the federal exemption, now is the right time to do so. Contact us here.
Yes, potentially. If your Maryland taxable estate exceeds $5 million at death, Maryland estate tax applies to the amount above the exemption. On a $6 million estate — $1 million above the Maryland exemption — the Maryland estate tax would be approximately $40,000 to $48,000 depending on the composition of the estate. With proper planning, this exposure can often be reduced significantly. Contact us for a review.
Without planning, if the first spouse dies and leaves everything to the surviving spouse outright, the first spouse's $5 million Maryland exemption is wasted. The surviving spouse then has a $9 million estate with only one $5 million Maryland exemption — resulting in $4 million subject to Maryland estate tax. A credit shelter trust can use the first spouse's exemption fully, potentially eliminating Maryland estate tax on up to $10 million combined. This is the most important planning step for Maryland married couples with estates above $5 million.
The farm's value is included in your Maryland taxable estate at fair market value unless you qualify for the Section 2032A special use valuation, which can reduce the taxable value to its agricultural use value. Maryland estate tax would apply to the amount above $5 million. Combined with the ILIT, gifting program, and trust planning, there are multiple strategies to reduce Maryland estate tax on farm assets. We work with farm families on this specifically — see our farm tax guide for more context.
No. Maryland does not impose a gift tax. Gifts made during your lifetime are not subject to Maryland tax — only the federal gift tax system applies, and most gifts are sheltered by the annual exclusion and lifetime exemption. This makes lifetime gifting an especially powerful Maryland estate tax reduction strategy — you can transfer assets out of your Maryland taxable estate during your lifetime without incurring Maryland gift tax.
Roy Cogliandolo, CPA
Mercer Flanagan · Frederick, MD · April 2026
The federal exemption is now $15 million — but Maryland's is still $5 million with no portability. If your estate may be approaching that threshold, the time to plan is now, not when it's too late to act.
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