Life Insurance in Estate Planning: Do Maryland Business Owners Still Need It After OBBBA?
Key Takeaways
- Maryland’s $5 million estate tax exemption didn’t change with the OBBBA — business owners with estates between $5 million and $15 million face state taxes up to 16% with zero federal offset.
- Life insurance pays within 30–60 days while estate settlement takes 6–18 months — that speed prevents forced liquidation of business assets and real estate.
- ILITs make death benefits triple tax-exempt — income tax-free, estate tax-exempt, and exempt from Maryland inheritance tax when properly structured.
- Second-to-die policies cut premiums 30–50% compared to individual policies and pay out exactly when estate taxes come due at the second spouse’s death.
- Maryland’s lack of spousal portability means both $5 million exemptions must be deliberately planned for — unused exemption from the first spouse to die is lost permanently.
The OBBBA permanently raised federal estate tax exemptions to $15 million. Maryland’s threshold stayed at $5 million. That gap puts business owners squarely in the crosshairs of state estate tax — and life insurance estate planning is the most direct solution. This guide breaks down how life insurance fits into legacy and family planning for Maryland business owners navigating the post-OBBBA landscape, from ILITs and second-to-die policies to succession funding and trust strategies.
What Role Does Life Insurance Play in Maryland Estate Plans After the OBBBA Amendment?
Life insurance fills the gap between federal and Maryland estate tax thresholds — a gap the OBBBA made wider and permanent.
The OBBBA Permanently Raised Federal Exemptions While Maryland’s Stayed Frozen
The OBBBA became law on July 4, 2025, permanently raising the federal estate tax exemption to $15 million per individual ($30 million for married couples) as of January 1, 2026. Maryland’s exemption remains frozen at $5 million per individual with no inflation indexing. That $10 million gap creates a tax trap. Estates between $5 million and $15 million owe zero federal estate tax but face Maryland rates from 0.8% to 16%. For Maryland business owners whose wealth is tied up in their company, life insurance estate planning provides the immediate liquidity to cover that state tax bill without forcing asset sales.
Life Insurance Gives Business Owners Fast Cash When Estate Taxes Hit
The OBBBA impact is clear in the numbers. Maryland estate tax liability runs $40,000 to $800,000 for estates between $5 million and $10 million. A $10 million estate owes roughly $800,000 on the amount above the exemption. Life insurance death benefits pay within 30–60 days. Estate settlement through probate takes 6–18 months or longer. Without estate tax coverage through insurance, business owners risk forced liquidation of real estate, equipment, or the business itself during that waiting period. Estates at $3.5 million and above already warrant formal financial planning — and for Maryland business owners, life insurance is often the most efficient estate strategy to bridge the gap.
The OBBBA’s Effect on Estate Tax Planning for Maryland Business Owners
The OBBBA changed federal rules permanently. Maryland’s rules didn’t move — and that mismatch demands action.
The OBBBA Eliminated the Federal Exemption Sunset But Left Maryland Unchanged
Before the OBBBA, higher federal exemptions were scheduled to sunset at the end of 2025. That deadline is gone. The federal estate and GST tax exemptions are now permanently set at $15 million per person, indexed for inflation. Maryland operates differently. The state offers no portability between spouses for its $5 million estate tax exemption — if one spouse dies without using their full exemption, that unused amount is lost. Maryland also imposes a 10% inheritance tax on non-lineal heirs, making it one of the most aggressive estate taxation states in the country. One bright spot: Maryland has no state gift tax, giving business owners a clean path for lifetime wealth transfers that reduce the taxable estate without state-level consequences.
Strategic Trust and Gifting Programs Pair with Life Insurance for Maximum Protection
Financial planning with trusts can save Maryland business owners $800,000 on a $10 million estate and $1.6 million on a $15 million estate. The 2026 annual gift tax exclusion is $19,000 per recipient — consistent gifting programs shrink taxable estates over time. GRATs freeze appreciating business interests at current values with minimal gift tax cost. SLATs remove assets from the combined marital estate while letting the beneficiary spouse retain indirect access — critical for legacy and family planning when divorce and your family’s business intersect. These insurance estate strategies work best alongside life insurance policies sized to cover remaining tax exposure. Currently, 60–70% of estates over $2 million use trusts regardless of exemption levels.
Integrating Life Insurance into Legacy and Family Planning After OBBBA
Life insurance estate planning works best when the policy itself stays outside the taxable estate. That’s where ILITs and succession funding come in.
ILITs Make Death Benefits Triple Tax-Exempt
An Irrevocable Life Insurance Trust removes the policy from the insured’s personal estate entirely. The ILIT trustee owns the policy — not the business owner. That ownership structure is the key. Crummey withdrawal powers let the grantor gift premium payments to the trust while qualifying each gift for the $19,000 annual exclusion in 2026. The result with proper structuring: death benefits that are income tax-free, estate tax-exempt, and exempt from Maryland inheritance tax. For Maryland business owners navigating the OBBBA impact, an ILIT is one of the most efficient insurance estate strategies available. Without one, life insurance proceeds count toward the $5 million state exemption and inflate the estate tax bill the policy was meant to cover.
Life Insurance Funds Buy-Sell Agreements and Equalizes Inheritances
Legacy and family planning for business owners goes beyond tax coverage. Life insurance funds buy-sell agreements that ensure smooth ownership transfer when a partner or key executive dies. The policy provides immediate liquidity to heirs and operational continuity for the business — no forced asset sales required. When a family business can’t be divided equally, insurance provides cash to equalize inheritances among heirs. This matters especially where divorce and your family’s business create competing claims on the same assets. Life insurance also replaces the deceased owner’s income, covering daily expenses and future needs like education or retirement for surviving family members. Proceeds can retire outstanding business debts — mortgages, loans, credit lines — so heirs inherit the business free from encumbrances. Estate planning and financial planning work together here: the insurance solves the liquidity problem while the trust structure solves the tax problem.
Estate Tax Coverage: Do Maryland Business Owners Still Need Life Insurance?
Yes. The higher federal exemption doesn’t eliminate Maryland’s $5 million threshold — and that’s where the tax bill lives.
A $7.5 Million Estate Needs Nearly $2 Million in Coverage
Policy sizing tells the story. A $7.5 million Maryland estate faces roughly $200,000 in state estate tax, $225,000 in administrative costs (3% of estate value), a $500,000 mortgage, and $1,000,000 in income replacement — totaling approximately $1,925,000 in life insurance need. Administrative costs alone run 3–7% of estate value. Probate adds court fees up to $2,500 plus attorney fees at 9% on the first $20,000 and 3.6% on the remainder. The process takes about a year, with initial filings due within 6–9 months. For Maryland business owners with estates above $5 million, estate tax coverage through life insurance isn’t optional — it’s the math.
Second-to-Die Policies Offer the Most Efficient Premium Structure
Insurance estate strategies vary by need and budget. Second-to-die policies cost 30–50% less than individual policies because the payout is deferred until the second spouse dies — exactly when estate taxes come due. A couple in their 50s might pay $8,000–$15,000 annually through an ILIT, versus $12,000–$22,500 for individual coverage. Term life runs $500–$3,000 annually and suits temporary needs like debt repayment. Permanent life insurance costs $5,000–$30,000+ annually but provides lifelong coverage, tax-deferred cash value, and a guaranteed death benefit. For long-term estate planning and financial planning, permanent policies paired with an ILIT deliver the strongest protection.
The Intersection of Family Law and Business Law in Estate Planning for Business Owners
Estate planning for business owners rarely stays in one legal lane. Family law and business law overlap constantly — especially around divorce and your family’s business.
Maryland’s Portability Gap Forces Deliberate Spousal Planning
Maryland doesn’t allow portability of the state estate tax exemption between spouses. Each spouse’s $5 million exemption must be fully utilized through deliberate plan structure or it’s lost. Maryland’s directed trust statutes (Section 14.5-808) let someone other than the trustee hold traditional trustee responsibilities — enabling more customized estate plans when business and family interests compete. Trust decanting provisions (Title 14, Subtitle 6) allow trustees to move assets into a new trust with updated terms, adapting irrevocable trusts when family or business circumstances change. Setup costs run $1,500–$4,000 with annual trustee fees of 0.5–2% of assets. Trusts administered outside Maryland with a Maryland settlor avoid state income tax on trust income entirely.
Divorce, Illiquid Assets, and Vulnerable Beneficiaries Demand Specialized Trust Structures
Business owners with illiquid assets need life insurance to cover estate taxes without forcing a business sale. Real estate–concentrated estates face the same problem — fire-sale pricing destroys value. Where divorce and your family’s business intersect, spendthrift trusts protect beneficiaries from creditors and financially irresponsible spending. QPRTs transfer a personal residence out of the taxable estate while the owner keeps living there — critical when the family home is a contested marital asset. Special needs trusts preserve government benefits for disabled family members. Revocable living trusts add privacy and incapacity planning, keeping financial details confidential and avoiding court-appointed guardianship.
Crafting Comprehensive Estate Plans for Maryland Business Owners in 2026
The OBBBA raised the federal exemption to $15 million. It did nothing to change Maryland’s $5 million threshold. That gap is the entire story for Maryland business owners in the $5–$15 million estate range — state taxes up to 16% with no federal offset.
ILITs with second-to-die policies remain the gold standard for estate tax coverage. They remove death benefits from the taxable estate, deliver triple tax-exempt proceeds, and pay out precisely when the liability hits. Maryland’s lack of spousal portability makes this structure even more critical — both exemptions must be planned for or lost. The absence of a state gift tax and the flexibility of directed trust statutes give business owners real tools to work with, but only if they act deliberately.
Estate planning at this level sits at the intersection of family law and business law. Divorce, succession, asset protection, and tax mitigation don’t happen in silos. When your family’s business is your largest asset, every decision in one area affects the others. ZM Law Group’s integrated approach across both practice areas addresses that reality directly — connecting life insurance estate planning, trust structures, and financial planning into a single coordinated strategy.
Tax laws evolve. Business valuations shift. Family circumstances change. Annual review of every estate plan is essential, and implementation requires coordination between estate planning attorneys, CPAs, and financial advisors. The OBBBA impact created new opportunities alongside persistent Maryland-specific risks. The business owners who act now protect the most.
Protect Your Business and Your Family’s Future with ZM Law Group
Maryland business owners face estate tax exposure that the OBBBA didn’t fix. ZM Law Group works at the intersection of family law and business law — exactly where your estate plan needs to be. From ILIT structuring to succession planning and divorce-related asset protection, we build strategies that keep your business intact and your family secure. Schedule a consultation today.
