05/04/2026
Maryland Inheritance Tax: The Overlooked Tax on Retirement Accounts and Non-Probate Assets
Quick Summary:
Maryland’s inheritance tax is a 10% tax on transfers to certain beneficiaries, and it applies to both probate and non-probate assets, including IRAs, 401(k)s, and payable-on-death accounts, as well as certain material transfers made within two years prior to death. Many beneficiaries are caught off guard because no probate does not mean no tax. Whether tax is due depends entirely on who receives the asset, not how it is titled.
The Biggest Misconception: “If It Avoids Probate, There’s No Tax”
That assumption is incorrect in Maryland.
Maryland is one of the few states that imposes both an estate tax and an inheritance tax. The inheritance tax is often the more immediate issue, and it does not depend on whether the asset passes through probate.
Assets Subject to Maryland Inheritance Tax
The 10% inheritance tax can apply to:
• IRAs and 401(k)s with named beneficiaries
• Life insurance, if payable to a non-exempt beneficiary
• Payable-on-death (POD) bank accounts
• Transfer-on-death (TOD) brokerage accounts
• Joint accounts, depending on ownership structure
• Trust distributions
If the beneficiary is non-exempt, the tax applies even if the asset transfers automatically outside of probate. Also note that Maryland’s inheritance tax is not limited to transfers that occur at death. The tax also applies to to material transfers made within two years prior to death, if those transfers are made to non-exempt beneficiaries, making them a substitute for testamentary disposition regardless of intent.
The 10% Tax: Who Pays It?
Maryland imposes a flat 10% inheritance tax on transfers to non-exempt beneficiaries. The tax is assessed on the full value as of the decedent’s date of death, and it is not reduced by the amount of income tax that may be due and payable, such as on IRAs and 401(k)s.
Financial institutions typically do not withhold Maryland inheritance tax and often do not even inform beneficiaries that it applies. As a result, the responsibility falls on the recipient, or sometimes the estate (depending on the terms in the decedent’s will or trust), to recognize the obligation and ensure that the tax is properly reported and paid.
This is where many compliance problems begin.
Who Is Exempt from Maryland Inheritance Tax?
The exemption rules are where most planning decisions matter.
Fully Exempt Beneficiaries
No inheritance tax applies to transfers to:
• Spouse
• Maryland-registered domestic partner, see note below
• Children and stepchildren
• Grandchildren and other lineal descendants
• Parents and grandparents
• Siblings
• Certain family members by marriage, such as a son-in-law or daughter-in-law
• Charities that qualify as U.S.-based 501(c)(3) organizations
These beneficiaries can receive both probate and non-probate assets without Maryland inheritance tax.
Domestic Partner Exemption
Maryland law provides a full inheritance tax exemption for a registered domestic partner, but only if the partnership is formally registered during both partners’ lifetimes.
Registration requires filing a domestic partnership registration with the Register of Wills in the county where the partners reside and paying a $25 filing fee.
The form is available here:
https://registers.maryland.gov/main/publications/Domestic%20Partnership%20Registration.pdf
If an unmarried couple does not complete this registration, the surviving partner is treated as a non-exempt beneficiary and may owe a 10% inheritance tax on assets received, including retirement accounts.
Who Is Not Exempt
The following beneficiaries are subject to the 10% inheritance tax:
• Unmarried partners who are not registered domestic partners
• Friends
• Nieces and nephews
• Cousins
• More distant relatives
• Business partners
Example
A $500,000 IRA passes directly to:
• The decedent’s son or daughter, no tax
• The decedent’s registered domestic partner, no tax
• The decedent’s unregistered partner or nephew, $50,000 inheritance tax
The result depends entirely the identity and family relationship with the beneficiary.
Retirement Accounts
Retirement accounts are where this issue arises most often.
They pass by beneficiary designation and do not go through probate. Financial institutions generally do not identify Maryland inheritance tax issues, and beneficiaries often assume that no probate means no tax.
That is how people end up with unexpected 10% tax bills, along with compliance issues and interest or late fees.
Is a Filing Required Even Without Probate?
Often, yes.
If taxable transfers occur, Maryland requires reporting to the Register of Wills and payment of inheritance tax even if no estate is opened.
In practice, this typically involves filing an Application to Fix Inheritance Tax on Non-Probate Assets (Form RW1125):
https://registers.maryland.gov/main/forms/RW1125.pdf
It is also necessary to confirm whether any tax has already been paid or still needs to be paid.
This is one of the most frequently missed steps in Maryland estate administration.
Planning Considerations
Steps That Help Avoid Problems
• Naming exempt beneficiaries where appropriate
• Ensuring domestic partners are properly registered
• Using charitable beneficiaries that qualify as U.S. 501(c)(3) organizations
• Reviewing beneficiary designations regularly
Common Mistakes
• Leaving retirement accounts to non-exempt individuals without planning
• Failing to register a domestic partnership during lifetime
• Naming entities that do not qualify as exempt charities
• Assuming joint ownership avoids the tax
• Failing to file required inheritance tax forms
• Ignoring Maryland-specific rules for out-of-state recipients
• Making significant transfers to non-exempt beneficiaries shortly before death under the assumption that inheritance tax will not apply
Bottom Line
Maryland’s inheritance tax depends on who receives the asset.
If a non-exempt beneficiary receives property, a 10% tax likely applies, even when the transfer occurs outside of probate, at death or even within two years prior to death.
For unmarried couples, the difference between registering a domestic partnership and not doing so can determine whether the tax is zero or ten percent of the entire transfer.
Need Guidance?
If you are administering an estate or are the recipient of beneficiary designations, it is worth addressing this issue early. A straightforward review can often prevent unnecessary tax or avoid compliance problems later.
