MD’s inheritance tax – targeting unintended families

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Inheritance tax seems like a fine idea on the surface, after all it helps fund Maryland’s government by taxing individuals who are inheriting assets from a decedent. The tax exempts family members. Many of us assume the weight of the inheritance tax is borne by wealthier individuals who have the majority of the assets being inherited and can afford the 10% tax.

However, as with many systems, there is often an unintended consequence that negatively affects certain Maryland families. With the current inheritance structure, two groups that are being overtaxed are individuals who aren’t married and/or don’t have children.

Because there is an exception for direct family members, spouses and children are automatically exempted from the tax. However, many Marylanders have meaningful family relationships that extend beyond the notion of the nuclear family.

For generations, many families have been made up of aunts, uncles, cousins, nieces and nephews, and step-children. These family members often play critical roles in a family’s stability. However, when it comes to inheritance tax, it’s as if they are complete strangers. This doesn’t reflect reality.

The Pew Research Center in 2023 found that 37% of households were spouses living together with their children. That means the inheritance tax does not account for 63% of households. And that number will likely continue to decline (it was 67% in 1970). If the family exemption is intended to assist families, then in 2026, it’s missing the vast majority of families.

The inheritance tax also disproportionately impacts LGBTQ+ families. After only gaining marital recognition in the last decade, more LGBTQ+ couples are unmarried, and many couples do not have children. While they form strong familial bonds, their partner, close friends, and any family members that aren’t their children, are seen as strangers as well under the current system.

Ironically, a wealthy individual, who on the surface is the idea of who should be impacted by this tax, ends up not being the target at all. That’s likely why most states have abandoned their inheritance tax, only five states utilize it today. Not only do wealthy individuals have the means to make comprehensive estate plans that bypass these kinds of taxes, but an inheritance tax incurred if they leave an inheritance to a non-spouse or non-child will be credited 100% against any estate tax that they might otherwise owe.

Last year, Governor Moore proposed the elimination of the inheritance tax as part of his budget proposal, but the legislature rejected it. The proposed elimination was tied to an increase in the estate tax, which this Editorial Board opposed.

As the General Assembly begins its session, we encourage them to take another look at addressing the failures of the existing process and consider either the elimination of the inheritance or the enactment of meaningful exemptions redefinitions that will accurately reflect today’s families. We concede that asking state leadership to eliminate a tax during budget challenges is not generally a popular opinion.

In 2024, the inheritance tax generated $94 million. However, there is a larger question for the legislature to address, which is, who are the families really being targeted by this tax, and do we want to perpetuate this burden on these families?

Editorial Advisory Board Members Arthur F. Fergenson and Nancy Forster did not participate in this opinion.

EDITORIAL ADVISORY BOARD MEMBERS

James B. Astrachan, Chair

James K. Archibald

Gary E. Bair

Arthur F. Fergenson

Nancy Forster

Susan Francis

Julie C. Janofsky

Ericka N. King

George Liebmann

George Nilson

Steven I. Platt

Angela W. Russell

Debra G. Schubert

Jeff Sovern

H. Mark Stichel

The Daily Record Editorial Advisory Board is composed of members of the legal profession who serve voluntarily and are independent of The Daily Record. Through their ongoing exchange of views, members of the board attempt to develop consensus on issues of importance to the bench, bar and public. When their minds meet, unsigned opinions will result. When they differ, or if a conflict exists, majority views and the names of members who do not participate will appear. Members of the community are invited to contribute letters to the editor and/or columns about opinions expressed by the Editorial Advisory Board.