Last reviewed: September 2026
Most Maryland business owners have never had their company formally valued, even though their will, their buy-sell agreement, and the life insurance funding it all depend on that exact number. That gap is the risk sitting underneath an otherwise well-drafted estate plan. In Maryland it is also more expensive to ignore, because Maryland taxes an estate twice over: once through its own state estate tax, and again through a separate inheritance tax that most other states do not levy at all.
Key Takeaways
- Maryland's state estate tax exemption is set at $5 million per person and is not tied to the much larger federal exemption, so a Maryland estate can owe state estate tax even when it owes nothing to the IRS.
- Maryland also levies a separate 10% inheritance tax on transfers to certain non-immediate relatives and unrelated heirs, a tax structure only Maryland still uses.
- A buy-sell agreement and the life insurance funding it are only as accurate as the business valuation behind them; an outdated formula can leave a buyout dramatically underfunded or overfunded.
- An Irrevocable Life Insurance Trust (ILIT) can help keep buy-sell insurance proceeds outside the taxable estate, but only if the policy amount was sized to a current, real valuation.
- Harford County and greater Baltimore-area business owners should revisit a formal valuation every few years, and immediately after any material shift in revenue mix, margin, or ownership.
About the Author
Jeff Judge, CFP®, AEP®, ChFC®, CLU®, is the founder of Chesapeake Financial Planners in Bel Air, Maryland, where he works with business owners across Harford County and the greater Baltimore area on estate, tax, and succession planning. Jeff holds the Accredited Estate Planner® designation and has spent years helping owners connect business valuation, buy-sell funding, and estate documents into one coordinated plan rather than three separate ones.
Why Does an Unverified Business Value Put Your Maryland Estate Plan at Risk?
Most Maryland business owners can tell you what they believe their company is worth. Ask where that number came from, and it is rarely a formal valuation. It is commonly a rule of thumb for the industry, a number a competitor's sale suggested a few years back, or a figure that has simply been repeated in family conversations long enough to feel settled. That unverified number is not a side detail. It is the load-bearing assumption underneath the will, the buy-sell agreement, and the life insurance sized to fund it.
Is a rough estimate close enough for estate planning purposes?
A rough estimate can be close enough for a casual conversation, but an estate plan is not a casual conversation. It is a set of legal instructions that has to work correctly the moment it is actually triggered, and a business valuation that is meaningfully off in either direction changes what heirs receive, what a surviving partner owes, and whether the insurance funding a buyout is anywhere near adequate.
If the business is worth more than the plan assumes, the insurance funding the buy-sell agreement falls short, and the surviving partner or the business itself scrambles to cover the gap while also managing the loss of an owner. If the business is worth less than the plan assumes, the buy-sell agreement can obligate a surviving partner to pay a price the business cannot support, which risks a forced sale of assets or a strained lender relationship.
How Does an Incorrect Valuation Break a Buy-Sell Agreement and Life Insurance Funding?
A buy-sell agreement often works through three connected pieces, and an outdated valuation breaks all three at once:
- The valuation formula in the agreement sets the price a surviving owner pays to buy out a deceased owner's share.
- The life insurance policy is sized to cover that exact price, so the surviving owner has funding on hand without liquidating the business.
- The will and broader estate plan divide the deceased owner's assets assuming the business interest is worth that same figure.
When the underlying number is wrong, all three connected pieces move out of alignment together, not just one of them.
| If the real value is… | What often happens |
|---|---|
| Higher than the buy-sell formula assumes | Life insurance funding falls short; surviving partner scrambles for cash; heirs may receive less than the business was actually worth |
| Lower than the buy-sell formula assumes | Surviving partner is obligated to overpay; risk of a forced asset sale or strained bank relationship |
Jeff Judge has walked through this with enough business owners to see the pattern clearly: the estate documents themselves are usually fine. The attorney did competent work drafting them. What is missing is not legal skill; it is the current, verified valuation those documents were supposed to be built around.
How Does Maryland's Estate and Inheritance Tax Interact With Business Value?
Maryland is the only state that layers a state-level estate tax on top of a separate inheritance tax. The state estate tax exemption is fixed at $5 million per person and, unlike the federal exemption, is not indexed for growth in the same way, which means a Harford County or Baltimore-area business owner whose company has appreciated can cross that threshold without realizing it. On top of that, Maryland charges a 10% inheritance tax on transfers to certain non-lineal heirs and unrelated beneficiaries, a tax spouses, children, and grandchildren are, in most cases, exempt from, but one that can apply to siblings, nieces, nephews, or a business partner receiving proceeds.
Why does the Maryland-specific tax layer matter for a business owner's valuation more than it does elsewhere?
It matters because a business interest is commonly the single largest, least liquid asset in a Maryland owner's estate, and both the state estate tax and the inheritance tax are calculated against the value of what transfers. If the business value used in planning is understated, the family may end up with an estate that owes more state tax than anticipated and no clear source of cash to pay it. If the value is overstated, the family may structure insurance and liquidity planning around a number larger than the real one, which wastes premium dollars that could have gone elsewhere.
Family business estate planning in Maryland has to account for both layers of tax at once, not just the federal exemption most national commentary focuses on.
What Role Does an ILIT Play in Funding a Buy-Sell Agreement?
An Irrevocable Life Insurance Trust, or ILIT, is one of the more common structures Maryland business owners use to keep buy-sell insurance proceeds out of the taxable estate. The trust, rather than the owner personally, owns the policy, and the death benefit funds the buyout without adding to the estate's own value for tax purposes. That structure only works cleanly when the policy amount inside the ILIT actually matches what the business is worth.
This is one of the places the R.U.D.D.E.R. Method™ earns its keep: it forces a review of how the business valuation, the buy-sell formula, the ILIT funding, and the will all connect as one system, rather than reviewing each document in isolation. A well-drafted ILIT sized to a stale valuation still leaves the same funding gap it was meant to close.
How often does a policy inside an ILIT actually get checked against a real valuation?
Rarely, and that is the core problem. An ILIT is commonly set up once, funded, and then left alone for years, while the business itself keeps changing. A policy that matched the business value at inception can drift meaningfully out of alignment within five to ten years, especially for a business shifting toward higher-margin recurring revenue.
How Often Should Harford County and Greater Baltimore Business Owners Revisit Their Valuation?
Business value is not a number that stays fixed once it is written down. It moves as revenue mix changes, as margins shift, and as the market for businesses in a given industry moves around Bel Air, Forest Hill, and the wider Harford County and Baltimore-metro area. A figure that was accurate five years ago can be significantly wrong today even though nothing about the estate documents themselves has changed.
A reasonable starting cadence: revisit the formal valuation every few years at minimum, and immediately after any material shift, a significant change in revenue model, a major client win or loss that changes the risk profile, an acquisition, or a meaningful change in profitability.
The single question worth asking this week is simple: if you already have an estate plan in place, when was the value your buy-sell agreement, your ILIT funding, and your will are all built around last actually verified? If the honest answer is "never" or "I am not sure," that is the gap. Not the documents themselves, which may be well drafted. The number underneath them, which nobody has confirmed is still true.
That single question is also the fastest way to tell whether your situation calls for a working session with a planner or a narrower conversation with a valuation professional and estate attorney; a short Fit Call is often the clearest way to sort out which one applies before committing to either.
Frequently Asked Questions
Does Maryland have both an estate tax and an inheritance tax?
Yes. Maryland is the only state that levies both a state-level estate tax, with an exemption fixed at $5 million per person, and a separate inheritance tax of 10% on transfers to certain non-immediate relatives and unrelated heirs. Spouses, children, and grandchildren are, in most cases, exempt from the inheritance tax, but siblings, other relatives, and business partners may not be.
Does a business valuation for estate planning need to be as rigorous as one prepared for a sale?
Not necessarily. A valuation prepared for estate and buy-sell planning purposes can range from a straightforward, cost-effective estimate suitable for internal planning to a more formal appraisal, depending on what the documents need to support. The goal is replacing a guess with a current, real number, not necessarily commissioning the most exhaustive process available.
Who should be involved in reconnecting a business valuation to an existing buy-sell agreement and ILIT?
This often involves the business owner's financial planner, the estate planning attorney who drafted the buy-sell agreement, a qualified valuation professional, and, if life insurance inside an ILIT is involved, the insurance professional who set up or services that policy. Coordinating all four keeps the valuation, the legal formula, and the funding aligned rather than updated in isolation.
How often does Maryland's $5 million estate tax exemption actually get triggered by a business interest?
More often than owners expect, because the exemption applies to the gross value of everything in the estate, not just liquid assets. A business that has grown steadily for a decade, plus a home, retirement accounts, and life insurance proceeds, can cross $5 million even when the owner does not think of themselves as wealthy in the way that threshold implies.
What happens if a buy-sell agreement and the will disagree about who owns what?
A conflict between a buy-sell agreement and a will can leave an estate stuck in probate while the attorney, the surviving partner, and the family sort out which document controls. Courts generally look to which agreement was executed correctly and whether it was properly referenced in later planning, which is exactly the kind of dispute a current, verified valuation and a coordinated review are meant to prevent.
Can a business owner update a stale valuation without redoing the entire estate plan?
Usually, yes. A fresh valuation typically feeds into the existing buy-sell formula and ILIT funding calculation without requiring a full rewrite of the will or trust documents. The attorney adjusts the specific figures and funding amounts that depend on the new number, while the overall structure of the plan usually stays intact.
A version of this article was originally published on Chesapeake Financial Planners' LinkedIn.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks.
The ChFC® is the property of The American College of Financial Services, which reserves sole rights to its use, and is used by permission.
The CLU® is the property of The American College of Financial Services, which reserves sole rights to its use, and is used by permission.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
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