In February 2025, we gave an urgent update that Maryland appeared poised to significantly reduce its estate tax exemption from $5 million to $2 million.
As discussed in the article, this move would impact thousands of Marylanders and many BDBF clients.
However, as we stated, the budget was merely a proposed budget and we would have more clarity by the end of the legislative session in April.
Why Was This Proposed?
The Maryland General Assembly faced a Herculean task this term. The General Assembly is required under the state constitution to pass a balanced budget.
As the General Assembly started its legislative term, it faced a $3 billion budget deficit, the worst deficit in 20 years. Adding insult to injury, when the Trump Administration took office, with federal cutbacks looming, the General Assembly was required to take into account another $280 million projected loss in revenue.
Near the start of the legislative term, Governor Wes Moore issued a proposed budget and presented it to the General Assembly for debate. Among the measures to raise revenue proposed by Governor Moore was a proposed reduction in the state estate tax exemption from $5 million to $2 million.
What Appears to be the Outcome?
After over two months of intense debate, the state backed away from its plan to reduce the estate tax exemption.
The estate tax exemption is expected to remain at $5,000,000.00 per individual, with up to $10,000,000.00 per married couple provided a surviving spouse makes a “portability” election.
Notably, the Governor had proposed eliminating Maryland’s inheritance tax (a tax assessed against certain recipients of inherited assets) in exchange for the reduction in the estate tax exemption. The Maryland inheritance tax will remain in place.
What Were the Politics Behind the Decision?
Although the Democratic Party controls the Governor’s mansion and both houses of the Maryland General Assembly, there are significant differences between these bodies.
On the whole, the Maryland House of Delegates tends to pursue more aggressive tax platforms and more progressive policies.
On the other hand, while the Maryland Senate very much supports similar programs as the Maryland House, the Maryland Senate is more conservative when it comes to raising taxes to support these programs.
The Maryland House quickly supported Governor Moore’s initial budget to reduce the estate tax exemption. When the budget crossed chambers to the Senate, it seems that support to reduce the estate tax exemption was more tepid.
At the same time as the budget crossed to the Maryland Senate, several articles and opinion pieces were published opposing a reduction in the estate tax exemption. The authors of these pieces noted that were Maryland to reduce its estate tax exemption, it could lead to an exodus of residents to surrounding jurisdictions which have no state estate tax (or more favorable state estate tax laws).
Was the change to estate tax a serious plan, or was it merely a bargaining chip to fortify proposed changes to other Maryland taxes? Only those behind closed doors in Annapolis know.
What Will the Future Hold?
Expect uncertainty. After many years of dormancy, the last two legislative sessions have seen proposals to reduce the estate tax exemption.
While the 2024 session featured a mere proposal by certain lawmakers, the 2025 session brought things significantly closer to reality, actually including a reduction in the Governor’s proposed budget.
Given the state’s difficult economic outlook, it is nearly certain that when the General Assembly begins its 2026 session, it will again be looking for ways to raise tax revenue. The estate tax may again find itself in the legislative crosshairs.
We will continue to keep our clients apprised of changes to the federal, Maryland, and District of Columbia estate tax. If you have any questions, please contact estate attorneys Jeremy Rachlin or Liz Farley at (301) 656-1177 (or via e-mail to jrachlin@bulmandunie.com or lfarley@bulmandunie.com).
