The Federal Estate Tax Exemption Is Now $15 Million. Your DC or Maryland Bill Did Not Go Away
Key takeaways
- The federal estate tax exemption rose to $15 million per person for 2026 and was made permanent, so most families now assume estate tax is somebody else’s problem.
- DC and Maryland did not follow. DC taxes estates above $4,988,400 for deaths in 2026. Maryland taxes above $5 million, a figure frozen since 2019 and not indexed for inflation.
- That means a DMV family can owe state estate tax while owing nothing federally. The gap between the two thresholds has never been wider.
- Maryland is the only state in the country with both an estate tax and a separate 10% inheritance tax. Virginia has neither.
- Estate tax is payable in cash, generally within nine months. If the estate is a house, a business interest and a retirement account, the liquidity has to come from somewhere.
Something quiet happened this year that changed the estate planning conversation in the DC metro, and it did not change it in the direction most people think.
For 2026 the federal estate and gift tax exemption rose to $15 million per person, or $30 million for a married couple. Under the tax law passed in 2025 that figure is now permanent and indexed for inflation, rather than scheduled to fall by half at the end of 2025 as it had been.
The reasonable reaction to that news is relief. For families in Fairfax or Arlington, relief is roughly the correct response. For families in the District or in Montgomery County, it is not.
Three jurisdictions, three completely different answers
| Estate tax threshold, 2026 | Top rate | Separate inheritance tax | |
|---|---|---|---|
| Federal | $15,000,000 per person | 40% | No |
| District of Columbia | $4,988,400 | 16% | No |
| Maryland | $5,000,000, frozen since 2019 | 16% | Yes, 10% |
| Virginia | None | n/a | No |
Read that table again with a number in mind. A family with a $7 million estate owes nothing federally. In Virginia they owe nothing at all. In the District or in Maryland, roughly $2 million of that estate sits above the state threshold and is exposed to a state estate tax running up to 16%.
Same family. Same balance sheet. Three very different outcomes depending on which side of a bridge they happened to buy a house on.
Why $7 million is not an unusual number here
It is tempting to file this under problems of the very wealthy. In this region that filing is often wrong, because estates are counted at full value and the DC metro has been quietly generous to long term owners.
Add up a paid off house in Bethesda or upper Northwest, thirty years of retirement accounts, a second property at the beach, a life insurance policy, and an interest in a business or a practice. Two career federal or professional incomes compound for a long time. Families who have never once described themselves as wealthy land above $5 million more often than they expect.
Maryland’s threshold is the one that quietly tightens every year. It has been $5 million since 2019 with no inflation adjustment, while property values and portfolios have moved considerably. Every year of growth pulls more households over a line that has not moved.
The Maryland double
Maryland is the only state that levies both an estate tax and an inheritance tax. Those are two different things and it is worth being precise about them.
The estate tax is paid by the estate before anything is distributed, on value above $5 million.
The inheritance tax is 10% and is paid on what a beneficiary receives, but only by certain beneficiaries. Spouses, registered domestic partners, children and other direct descendants, parents, grandparents, siblings, and charities are exempt. Nieces, nephews, cousins, friends and other non lineal beneficiaries are not.
That distinction catches people out in a specific and avoidable way. If you have no children and you intend to leave your estate to a niece, a nephew, or a close friend, Maryland treats that inheritance very differently than it would treat a gift to a son or daughter. It is worth knowing before the will is signed rather than after.
Where life insurance actually fits
Here is the part that is genuinely about insurance rather than tax law.
Estate tax is not paid out of goodwill or over time. It is generally due in cash roughly nine months after death. Now look at what most estates around here are actually made of: a house, retirement accounts, maybe a business interest or a share of a practice. Very little of that is cash, and some of it cannot be sold quickly without losing real value.
So the family faces a bill on a deadline, with assets they either cannot or should not sell in a hurry. That is how houses get sold in a soft market, how a business interest gets sold to whoever happens to be available, and how retirement accounts get liquidated with the tax consequences that brings.
Life insurance is the standard answer to that specific problem because it delivers cash at exactly the moment the bill arrives. It does not reduce the tax. It funds it, so the rest of the estate can be settled on the family’s timeline rather than the calendar’s.
The trap nobody mentions until it is too late
If you owned the policy on your own life, the death benefit is generally counted as part of your taxable estate.
Read that twice, because it undoes the plan. A family buys a policy to cover an estate tax bill, and the policy itself increases the estate and therefore the bill. A $2 million policy bought to solve a Maryland estate tax problem can enlarge the very number it was meant to address.
The usual structural answer is to have the policy owned outside the estate, commonly through an irrevocable life insurance trust, so the death benefit is available to the family without being counted in the estate. There are real rules attached to how that is set up and there are timing traps, particularly when transferring a policy you already own.
We want to be straightforward about the boundary here. Capitol Benefits are insurance advisors, not attorneys or tax advisors. We can tell you what a policy will cost, how much coverage the liquidity problem actually calls for, and which carriers underwrite a given health profile well. The trust itself needs an estate attorney, and any broker who offers to handle that part is out of their depth.
What we would suggest you do
- Estimate your gross estate honestly, at current market value, including the death benefit of any policy you personally own. Most people undercount by leaving out the house at today’s value or forgetting the policy.
- Compare that number to the threshold where you actually live. $4,988,400 in the District, $5 million in Maryland, no threshold in Virginia.
- If you are anywhere near it, or expect to be within ten years, talk to an estate attorney before you talk to anyone about products.
- Once there is a plan, work out how much of the bill needs funding with cash and what that costs to insure. That part is our job and it is usually less dramatic than people fear.
- If you already own a policy that was meant for estate liquidity, have someone check who owns it. That single detail decides whether it helps or hurts.
None of this is urgent in the way an October deadline is urgent. But it is the kind of thing that is straightforward to arrange at 55 and expensive or impossible to arrange at 75, and the difference between those two is usually just whether anyone raised it.
Frequently Asked Questions
Does the District of Columbia have its own estate tax?
Yes. For deaths occurring in 2026 the DC exemption is $4,988,400, and estates above that are taxed at graduated rates running from 11.2% up to 16%. The threshold is adjusted annually for inflation.
What is the Maryland estate tax exemption in 2026?
$5 million per person. Unlike the federal and DC thresholds, Maryland’s has been frozen at $5 million since 2019 and is not indexed for inflation, so it effectively tightens each year as asset values rise. The top Maryland estate tax rate is 16%.
Does Virginia have an estate tax or an inheritance tax?
Neither. Virginia repealed its estate tax in 2007 and has no inheritance tax. For estate tax purposes, moving across the Potomac genuinely changes the answer.
Who actually pays the Maryland inheritance tax?
It is a flat 10% paid by certain beneficiaries on what they receive. Spouses, registered domestic partners, children and other direct descendants, parents, grandparents, siblings, and charities are exempt. Nieces, nephews, cousins, friends and other non lineal beneficiaries are not exempt.
Is a life insurance payout subject to estate tax?
The death benefit is generally income tax free to the beneficiary, which is what most people are thinking of. But if you owned the policy on your own life, the death benefit is generally included in your taxable estate. That is why policies intended to fund an estate tax bill are usually owned outside the estate rather than personally.
Why would an estate need cash within nine months?
Estate tax is generally due about nine months after death and is payable in cash. Most estates in this region are made up of a home, retirement accounts and sometimes a business interest, none of which are cash. That mismatch is the specific problem life insurance is used to solve.
The federal exemption went up to $15 million. Can we stop worrying about estate tax?
If you live in Virginia, largely yes. If you live in the District or in Maryland, no. The state thresholds are roughly a third of the federal one, so for many DMV families the state estate tax is now the only estate tax they will ever face, and it is easy to miss precisely because the federal news was reassuring.
Related reading from Capitol Benefits
Ready when you are
Let's take a look at what you've got.
A real review of your current coverage. No deck, no pressure, and usually some money saved along the way.