Estate planning is a crucial step for families seeking to protect their assets, care for their loved ones, and create a lasting legacy. If you live in Montgomery County, Maryland, understanding the local estate tax laws and how they differ from federal rules is especially important. With high property values, state-specific tax rules, and proposed legal changes on the horizon, your estate plan needs to be up to date and tailored to where you live.
This guide explains what every Montgomery County family should know about estate planning, including Maryland estate tax exemptions, how trusts can be used to minimize tax and avoid probate, and the potential impact of proposed state legislation.
What Is Estate Planning?
Estate planning is the process of arranging your financial, medical, and personal affairs so that your wishes are carried out during life and after death. At its core, a good estate plan helps:
- Protect your home and other assets
- Reduce estate and inheritance taxes
- Avoid the costs and delays of probate
- Ensure your children are cared for by people you trust
- Appoint someone to handle your affairs if you become incapacitated
Key Documents in an Estate Plan
- Last Will and Testament
- Revocable Living Trust
- Power of Attorney
- Advance Medical Directive (Living Will)
- HIPAA Authorization
- Beneficiary Designations
Maryland Estate Tax: What Montgomery County Families Must Know
Maryland is one of the few states in the U.S. that imposes a separate estate tax and an inheritance tax.
Maryland Estate Tax Exemption (2025)
The Maryland estate tax exemption is $5 million per individual for the 2025 tax year. If your taxable estate exceeds this threshold, the excess may be subject to a state tax of up to 16%.
Federal Estate Tax Exemption
For comparison, the federal estate tax exemption in 2025 is $13.99 million per person, or $27.98 million for married couples who elect portability.
Maryland Inheritance Tax
Separate from the estate tax, Maryland’s inheritance tax is 10%, but only applies to property left to people outside your immediate family (e.g., siblings, nieces/nephews, friends, non-relatives).
Who Is Exempt?
- Spouse
- Children, stepchildren
- Parents, grandparents
- Siblings (exempt if named in a will)
- Certain domestic partners (if registered and documented)
Non-exempt heirs may face a 10% tax on what they receive, even if no estate tax is due.
Homeownership in Montgomery County: Estate Planning Implications
With median home values exceeding $600,000, many Montgomery County residents may unknowingly be close to, or over, the estate tax exemption.
Example: Typical Family Assets
| Asset | Value |
| Home (Montgomery County) | $800,000 |
| Retirement Accounts (401k/IRA) | $700,000 |
| Life Insurance | $1,000,000 |
| Savings & Investments | $500,000 |
| Small Business Equity | $1,000,000 |
| Total | $4,000,000–$5,000,000+ |
Due to property appreciation and asset growth, many estates in Montgomery County are likely to surpass the $5 million threshold within the next 5 to 10 years. It’s wise to consult with an experienced estate planning attorney and a fiduciary financial planner to ensure your plan remains tax-efficient and up-to-date.
Property Titling in Maryland
- Tenants by the Entirety (for spouses): Avoids probate and offers creditor protection
- Joint Tenants with Rights of Survivorship: Probate avoidance, but may have tax drawbacks
- Individually Titled Property: Must go through probate unless in a trust
>> Maryland does not allow Transfer-on-Death (TOD) deeds for real estate. Trusts remain the best probate avoidance tool for homes.
Trusts: Essential Tools for Maryland Estate Planning
Trusts offer more than just tax savings, they can help avoid probate, manage assets during incapacity, and protect minor children or heirs with special needs.
Revocable Living Trust
A flexible tool to:
- Avoid probate
- Maintain privacy
- Ensure smooth transition if incapacitated
Credit Shelter Trust (Bypass Trust)
Used by married couples to fully use both Maryland exemptions:
- Upon the death of the first spouse, assets go into a trust up to the exemption amount
- Surviving spouse can access income and some principal
- Assets may pass estate-tax free to heirs after the second death
Irrevocable Life Insurance Trust (ILIT)
Removes life insurance proceeds from the taxable estate. This is especially useful for high-value policies or business owners with key person coverage.
Strategies to Reduce or Avoid Maryland Estate Tax
- Use Trusts (Bypass, ILIT, GRATs)
- Lifetime Gifting
- Use the annual exclusion ($18,000 per person in 2025)
- Consider 529 plans or direct medical/tuition payments (excluded from gift limits)
- Charitable Giving
- Donate assets directly or through a charitable remainder trust.
- Family Limited Partnerships (FLPs)
- Transfer assets with valuation discounts.
- Review Beneficiaries and Titling Regularly
- Plan for Business Succession
Common Questions About Estate Planning in Maryland
1. Do I need a trust if I already have a will? A trust helps avoid probate and can provide more control over your assets. A will alone does not prevent probate in Maryland.
2. Can my spouse inherit my estate tax-free? Yes, under the marital deduction, but the second spouse’s estate may face taxes without proper planning (i.e., trusts).
3. What happens if I do no estate planning? Maryland’s intestacy laws will decide who inherits your assets, and your estate may be subject to unnecessary taxes and court oversight.
4. What if I leave money to a friend? A 10% Maryland inheritance tax may apply, even if no estate tax is due.
5. Are estate planning documents valid across state lines?
Mostly yes, but Maryland-specific documents are best if you reside here full-time.
Estate planning is not just about taxes, it’s about peace of mind.
For Montgomery County families, the combination of high home values and Maryland’s unique estate laws means that even moderate estates could face significant tax exposure.
Taking proactive steps today, such as establishing a trust, reviewing asset titling, and staying informed about legislation, can help you preserve your wealth and pass it on according to your wishes.
Disclaimer: District Capital Management is not a law firm, and we do not provide legal advice. The information contained in this guide is for educational purposes only and should not be construed as legal advice. Estate planning involves complex legal considerations, and laws may change over time. Before making any estate planning decisions, you should consult with a qualified estate planning attorney licensed in your state.
