Maryland Estate Planning: Why Trusts Save Money vs Wills

Maryland Estate Planning: Why Trusts Save Money vs Wills

Maryland is one of the few states with both an estate tax and an inheritance tax, making thoughtful estate planning essential for families who want to preserve wealth and minimize costs.

Maryland's Double Tax Challenge

Estate tax: Maryland imposes an estate tax on estates valued above $5 million (as of 2025).
Inheritance tax: A 10% tax applies to certain beneficiaries, such as nieces, nephews, friends, and distant relatives. Spouses, children, parents, and siblings are generally exempt.
Combined impact: For some families, both taxes can apply, creating a significant tax burden and reducing the amount passed on to heirs.

Why Trusts Win in Maryland

• Estate tax reduction: Certain trusts can help reduce the size of your taxable estate, potentially lowering or eliminating Maryland estate tax liability.

• Inheritance tax planning: Trusts allow for strategic beneficiary designations, which can help avoid or minimize inheritance tax for certain heirs.

• Probate avoidance: Assets held in trust generally bypass probate, saving time, legal fees, and maintaining privacy for your family.

• Asset protection: Some trusts can shield assets from creditors or lawsuits, offering additional security for your legacy.

Maryland-Specific Trust Strategies

• Credit shelter trusts (bypass trusts): Married couples can use these to maximize both spouses’ estate tax exemptions, potentially doubling the amount protected from Maryland estate tax.

• QTIP trusts (Qualified Terminable Interest Property): These allow a surviving spouse to benefit from trust assets during their lifetime, while ultimately controlling who inherits the remainder. This is especially useful for blended families or second marriages.

• Irrevocable trusts: Once assets are placed in an irrevocable trust, they are generally removed from your taxable estate, which can reduce both estate and inheritance taxes. However, you give up control over these assets, so careful planning is needed.

Maryland’s unique combination of estate and inheritance taxes makes trusts a powerful tool for families who want to preserve wealth, avoid unnecessary costs, and ensure their wishes are honored.

Caveats and Considerations

• Trusts are not a one-size-fits-all solution. The right strategy depends on your family structure, asset types, and long-term goals.

• Tax laws and exemption amounts can change. Regularly review your estate plan to ensure it remains effective.

• Some trusts, especially irrevocable ones, involve giving up control over assets. Make sure you understand the implications before proceeding.

• Probate avoidance is a benefit, but not all assets need to be placed in trust to avoid probate (e.g., jointly owned property or accounts with designated beneficiaries).

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Disclaimer: This blog post is for general informational purposes only and does not constitute legal advice. Estate planning outcomes can vary based on your personal circumstances and the evidence available. Always review your options carefully and consider how changes in law may affect your plan.