Essential Guide to Estate Planning in Montgomery County, Maryland

Estate planning is vital for families aiming to safeguard their assets, support their loved ones, and build a lasting legacy. For residents of Montgomery County, Maryland, being aware of local estate tax laws—and how they differ from federal regulations—is particularly crucial. Given the area’s rising property values and evolving legal frameworks, it’s essential to ensure your estate plan is current and customized to your specific needs.

This guide outlines what every Montgomery County family needs to know about estate planning, including Maryland estate tax exemptions, the strategic use of trusts, and the implications of potential legislative changes.

What Is Estate Planning?

Estate planning involves orchestrating your financial, medical, and personal matters to ensure your desires are honored during your lifetime and after your death. At the heart of a comprehensive estate plan is the ability to:

• Protect your home and assets
• Minimize estate and inheritance taxes
• Avoid the expenses and delays associated with probate
• Ensure trustworthy care for your children
• Appoint an individual to manage your affairs in case of incapacity

Key Documents in an Estate Plan

To create a solid estate plan, consider these essential documents:

• 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 that imposes both an estate tax and an inheritance tax, making it essential for residents to understand these implications.

Maryland Estate Tax Exemption (2025)

For the tax year 2025, the Maryland estate tax exemption stands at $5 million per individual. If your taxable estate exceeds this limit, any excess may be taxed at a rate of up to 16%.

Federal Estate Tax Exemption

In comparison, the federal estate tax exemption for 2025 is $13.99 million per individual, or $27.98 million for married couples who elect portability.

Maryland Inheritance Tax

Maryland applies a 10% inheritance tax, which is imposed on property left to individuals outside your immediate family (like siblings, nieces, or friends).

Who Is Exempt?

Exempt heirs include:

• Spouses
• Children and stepchildren
• Parents and grandparents
• Siblings (if named in a will)
• Certain registered domestic partners

Non-exempt heirs will incur a 10% tax on their inheritance, even if no estate tax is applicable.

Homeownership in Montgomery County: Estate Planning Implications

With the median home values exceeding $600,000, many Montgomery County residents may unknowingly approach or surpass the estate tax exemption limit.

Example: Typical Family Assets

Due to property appreciation, many estates in Montgomery County are likely to exceed the $5 million threshold in the next 5 to 10 years. It’s highly advisable to consult an estate planning attorney and a fiduciary financial planner to ensure your estate plan is tax-efficient and up-to-date.

Property Titling in Maryland

• Tenants by the Entirety (for spouses): Offers creditor protection and avoids probate.
• Joint Tenants with Rights of Survivorship: Eliminates probate but may have potential tax consequences.
• Individually Titled Property: Must go through probate unless placed in a trust.

Note: Maryland does not permit Transfer-on-Death (TOD) deeds for real estate. Trusts are the most effective tool for avoiding probate for homes.

Trusts: Essential Tools for Maryland Estate Planning

Trusts provide advantages beyond mere tax savings. They help to avoid probate, manage assets if incapacitated, and protect minor children or heirs with special needs.

Types of Trusts

1. Revocable Living Trust:

   • Avoids probate
   • Maintains privacy
   • Ensures a smooth transition during incapacity

2. Credit Shelter Trust (Bypass Trust):

   • Enables married couples to fully utilize both Maryland exemptions

3. Irrevocable Life Insurance Trust (ILIT):

   • Removes life insurance proceeds from the taxable estate, beneficial for high-value policies or business owners.

Strategies to Reduce or Avoid Maryland Estate Tax

• Use of Trusts: (Bypass, ILIT, GRATs)
• Lifetime Gifting: Utilize the annual exclusion ($18,000 per person in 2025) or contribute to 529 plans or direct medical tuition payments.
• Charitable Giving: Donate assets through a charitable remainder trust.
• Family Limited Partnerships (FLPs): Facilitate asset transfer at reduced valuations.
• Regularly Review Beneficiary Designations and Property Titling
• Plan for Business Succession

Common Questions About Estate Planning in Maryland

1. Do I need a trust if I already have a will?
   Yes, a trust helps avoid probate and offers more control. A will alone will not prevent probate in Maryland.

2. Can my spouse inherit my estate tax-free?
   Yes, under the marital deduction. However, without proper planning, the surviving spouse’s estate may incur taxes.

3. What happens if I do no estate planning?
   Maryland’s intestacy laws will dictate who inherits your assets, potentially leading to unwarranted taxes and court involvement.

4. What if I leave money to a friend?
   A 10% inheritance tax might apply, even if no estate tax is in effect.

5. Are estate planning documents valid across state lines?
   Generally, yes, but Maryland-specific documents are recommended for full-time residents.

Conclusion

Estate planning is more than just a financial strategy; it’s a way to secure peace of mind. For families in Montgomery County, the combination of rising property values and Maryland’s unique estate laws means that even average estates could face significant tax exposure.

Proactive measures—such as setting up a trust, reviewing asset titles, and staying informed about new legislation—can help you preserve your wealth and ensure it is distributed according to your wishes.

Disclaimer: This guide is for educational purposes and should not be seen as legal advice. Always consult with a qualified estate planning attorney licensed in your state for specific advice related to your situation.