Portability and the Marital Deduction: Estate Planning Strategies for Maryland Couples in 2026
Key Takeaways
- Federal portability lets married couples shelter up to $30 million from federal estate tax in 2026, but requires filing IRS Form 706 within strict deadlines.
- Maryland’s $5 million exemption is not indexed for inflation and carries a flat 16% tax rate — making state-level planning essential even when federal taxes don’t apply.
- Credit shelter trusts and QTIP trusts can save Maryland couples $400,000–$1.6 million in state estate tax by preserving both spouses’ exemptions.
- Divorce does not automatically protect non-probate assets — federal ERISA preemption means ex-spouses can still inherit life insurance and retirement accounts without updated beneficiary designations.
- The One Big Beautiful Bill Act permanently raised the federal exemption to $15 million, widening the gap with Maryland’s threshold and requiring immediate review of existing estate plans with formula clauses.
Maryland couples face a dual estate tax system that demands strategic planning. Federal and state exemptions differ significantly, portability rules carry strict deadlines, and the 2026 tax landscape has shifted under new legislation. Whether maximizing a spousal exemption, structuring trusts, or updating plans after divorce, every decision affects how much of your estate reaches the next generation. This guide breaks down the key strategies Maryland couples need to know right now.
How Can Married Maryland Residents Use Portability to Maximize Their Combined Estate-Tax Exemptions in 2026?
Portability is the single most important estate tax strategy 2026 offers Maryland couples. It lets spouses combine their exemptions — but only if they follow the right steps at the right time.
Portability and Its Role in Estate Tax Planning
Federal portability allows a surviving spouse to claim the Deceased Spousal Unused Exclusion (DSUE) — their late spouse’s unused estate tax exemption. The executor must file IRS Form 706 to elect portability, even if the estate owes no tax. The filing deadline is nine months after death, with a six-month extension available through Form 4768. For portability-only returns, Revenue Procedure 2022-32 allows filing up to five years after death. Professional fees for Form 706 range from $750 to $4,500 for straightforward filings.
How Portability Benefits Maryland Couples in Estate Planning
Maryland imposes its own estate tax with a $5 million individual exemption under Tax-General Article, Section 7-309 — and unlike the federal exemption, it is not indexed for inflation. Maryland does recognize portability between spouses, giving couples a combined $10 million state exemption. To elect it, a Maryland Estate Tax Return (Form MET-1) must be filed with the Comptroller within nine months of death, or within two years for portability-only filings. Maryland’s flat 16% estate tax rate hits at a far lower threshold than federal taxes. The state also levies a separate 10% inheritance tax on non-lineal heirs, though amounts paid offset the estate tax liability. Fewer than 5,000 estates nationwide owed federal estate tax in 2015 — but Maryland’s lower exemption pulls significantly more families into the state-level tax net, making portability essential to any Maryland couples estate planning strategy.
What Is the Marital Deduction, and How Does It Impact Estate Tax Planning for Maryland Couples?
The marital deduction is the foundation of every estate tax strategy 2026 couples should understand. It defers taxes — but without proper planning, it can create a larger bill at the second death.
Key Features of the Marital Deduction in Estate Tax Strategy
The unlimited marital deduction under 26 U.S. Code § 2056 allows tax-free transfer of unlimited assets between spouses during life or at death. Established in 1982, it treats married couples as a single economic unit for estate and gift tax purposes. The critical distinction: it defers estate tax until the surviving spouse’s death, not eliminates it. This applies to both federal and Maryland estate taxes. If the surviving spouse is not a U.S. citizen, a Qualified Domestic Trust (QDOT) is required to qualify.
How the Marital Deduction Helps Minimize Estate Taxes for Maryland Couples
A Maryland QTIP election lets couples defer state estate tax until the second death, protecting up to $10 million. QTIP trusts are especially valuable for blended families — 16% of U.S. children live in one. The surviving spouse receives all trust income for life, while the deceased spouse controls who ultimately inherits the principal. Maryland’s unique “Maryland-only QTIP Trust” holds assets between the $5 million state exemption and the federal exemption, functioning as a credit shelter trust federally and a marital trust at the state level. The QTIP election must be made on Form 706, with a deadline extended to five years for decedents dying on or after July 8, 2022. Estate planning fees for QTIP trusts in Maryland range from $700 to $1,500+, with ongoing trustee administration fees of 0.5%–2% of trust assets annually.
What Are the Key Estate Tax Strategies for Maryland Couples to Consider in 2026?
The right estate tax strategy for 2026 can save Maryland couples hundreds of thousands in unnecessary taxes. Combining portability with trust planning and disclaimer strategies delivers the strongest results.
Utilizing Portability and the Marital Deduction Together for Maximum Benefit
A credit shelter trust (bypass trust) is funded with the first spouse’s assets up to Maryland’s $5 million exemption. The surviving spouse can receive trust income and access principal under the HEMS standard — health, education, maintenance, and support. Because trust assets and their appreciation are excluded from the surviving spouse’s taxable estate, both spouses’ exemptions are preserved. For a $10 million couple, this approach can yield $400,000–$1.6 million in Maryland estate tax savings. Roughly 800–1,200 Maryland estates annually fall in the $5–$13.99 million range where this planning matters most. Portability election professional fees run $5,000–$15,000 for the complete filing process.
Strategies to Avoid Estate Taxation for Maryland Couples in 2026
Disclaimer planning gives surviving spouses flexibility after the first death. By refusing an inheritance under IRC Section 2518, assets pass directly to a credit shelter trust. The disclaimer must be in writing, delivered within nine months, made without accepting any benefits, and the assets must pass without the disclaimant’s direction. Maryland’s MUDOPIA (Estates & Trusts § 9-201) decouples state timing from the federal deadline, but the nine-month federal rule still governs tax qualification. Maryland also imposes no gift tax, making lifetime gifts a powerful tool for reducing taxable estates. Despite these opportunities, only 33% of U.S. adults have documented estate plans — even though 77% of individuals with $1M+ net worth do.
How Does the New Estate Tax Law in 2026 Affect Maryland Couples’ Estate Planning?
The One Big Beautiful Bill Act reshaped the federal estate tax landscape. For Maryland couples, the real impact isn’t fewer federal taxes — it’s a wider gap between federal and state exemptions that demands updated planning.
Changes in Estate Tax Exemptions and Portability for 2026
The OBBBA (Public Law 119-21), signed July 4, 2025, permanently raised the federal estate, gift, and GST tax exemptions to $15 million per individual, effective January 1, 2026, with annual inflation adjustments. With portability, married couples can now shelter up to $30 million from federal estate tax. The 40% federal rate remains unchanged. Before the OBBBA, the 2025 exemption stood at $13.99 million per individual, and was set to sunset to roughly $7 million in 2026. Maryland’s $5 million exemption remains frozen — not indexed for inflation. Estate plans with formula clauses for trust funding and distributions must be reviewed immediately, as the new exemption amounts may trigger unintended results.
Impact of the Spousal Exemption on Estate Planning for Maryland Couples
The $10 million per-spouse gap between federal and Maryland exemptions creates a critical planning corridor. Maryland-only QTIP trusts are now more relevant than ever, holding assets between the $5 million state threshold and the $15 million federal exemption. Every Maryland couple with assets above $5 million should reassess their estate tax strategy 2026 plans. Basic estate plans cost $1,000–$3,000, while complex trust and tax planning runs $3,000–$7,000+. Comprehensive revisions range from $2,000–$8,000. Estate plans should be reviewed every three to five years — or immediately after a major law change like the OBBBA.
How Do Separation Agreements and Marital Property Distribution Affect Estate Planning for Maryland Couples?
Divorce rewrites the rules of legacy and family planning. A separation agreement changes spousal rights immediately, but without proactive updates, estate plans can still send assets to an ex-spouse.
Addressing Property Division in Separation Agreements and Estate Planning
Under Maryland Estates and Trusts Code §3-406, a complete property settlement acts as a waiver of all rights to family allowance, elective share, and intestate succession — including benefits under any will or revocable trust executed before the settlement. Section §1-202 further confirms that a divorced person is not a “surviving spouse” for inheritance purposes. Retirement assets require a Qualified Domestic Relations Order (QDRO) for tax-free division of 401(k)s and pensions. QDRO distributions to a former spouse are exempt from the 10% early withdrawal penalty. Processing takes 2–12 months, with preparation costs in Maryland ranging from $349–$695 per order at flat rates, or $500–$1,250 at hourly attorney rates.
Estate Tax Considerations for Divorced and Separated Maryland Couples
Maryland’s automatic revocation statute (§4-105(b)(4)) revokes will provisions favoring an ex-spouse upon divorce, and §14.5-604 does the same for revocable trusts. But these protections do not cover non-probate assets — life insurance, retirement accounts, TOD/POD accounts, or annuities. Federal ERISA preemption, confirmed in Egelhoff v. Egelhoff (532 U.S. 141, 2001), means employer-sponsored plan beneficiary designations override state law entirely. Nearly 70% of estate plans carry outdated beneficiary designations, and 1 in 10 divorcees forget to remove an ex-spouse from life insurance. With 49% of first marriages ending in divorce and gray divorce rates doubling over 25 years, updating marital property distribution documents is not optional.
What Estate Planning Steps Should Maryland Couples Take to Prepare for the 2026 Tax Landscape?
The 2026 tax changes demand action. Whether navigating divorce or optimizing a spousal exemption strategy, Maryland couples need updated documents and the right professional team.
Updating Wills, Trusts, and Estate Plans in Light of 2026 Changes
Start during separation — review and update powers of attorney and healthcare directives immediately. After the final divorce decree, formally revise wills, trusts, and all beneficiary designations. Priorities include revoking wills naming an ex-spouse, terminating joint trusts, updating beneficiaries on life insurance, 401(k)s, IRAs, annuities, bank and investment accounts, HSAs, and disability policies. Revoke existing powers of attorney and execute new documents. Update custodial accounts for minor children, including 529 plans, and modify guardianship designations. Will amendments cost $75–$400, trust amendments run $300–$1,000, and comprehensive overhauls range from $500–$1,500+. Maryland Register of Wills probate fees scale from $0 for estates under $50,000 to $10,000+ for estates exceeding $7.5 million. Only 24% of U.S. adults reported having a will in 2025 — down from 33% in 2022.
Collaborating with Estate Planning Professionals for Maryland Couples’ Success
Maryland couples with estates between $5–$13.99 million risk millions in unnecessary taxes without proper portability planning — at combined federal (40%) and state (16%) rates. The right team includes an estate planning attorney, CPA, financial advisor, and potentially a trust company for ongoing administration. Professional trustees charge 0.5%–2% of trust assets annually. Maryland personal representative commissions start at 9% of the first $20,000, then decrease on higher amounts. Estate plans should be reviewed every three to five years or after any major life event or law change.
Protect Your Legacy – Contact ZM Law Group Today!
Estate tax laws are changing, and Maryland couples cannot afford to wait. Whether you need to elect portability, establish a credit shelter trust, update beneficiary designations after divorce, or build a comprehensive estate tax strategy for 2026, ZM Law Group can help. Schedule a consultation today to maximize your exemptions, minimize your tax burden, and secure your family’s future.
