Small Business Owners’ Last Chance: $13.99 Million Gift Before Maryland Estate Taxes Soar
Key Takeaways
- The current federal estate and gift tax system allows $13.99 million per individual (with more coming in 2026), and every lifetime gift you make draws from this unified exemption.
- Maryland’s unique combination of a $5 million state estate tax threshold and a separate 10% inheritance tax means many business owners face state-level exposure long before federal taxes apply.
- Small business owners whose wealth is concentrated in closely held companies, real estate, and retirement assets should evaluate whether they are approaching federal or Maryland thresholds.
- Acting now lets owners “lock in” today’s higher exemptions, use valuation discounts on business interests, and push all future appreciation outside the taxable estate.
- Advanced strategies such as SLATs, IDGTs, GRATs, and ILITs can combine tax-efficient transfers, family access, business continuity, and liquidity for future estate taxes or buyouts.
For many Maryland small business owners, the business is the largest asset they own—and also the least liquid. At the same time, federal estate and gift tax exemptions have risen to historic levels, giving owners a rare chance to transfer millions of dollars’ worth of value without federal transfer tax. Maryland complicates the picture with its own estate and inheritance taxes, which can hit far sooner than federal rules.
This article explains how the $13.99 million federal exemption works, why Maryland residents are uniquely exposed, and what makes this window feel like a “last chance” before potential tax increases or higher valuations. You will also learn how discounted gifts of business interests and targeted trust strategies can move future growth to your heirs while preserving control and liquidity today.
What is the Current $13.99 Million Estate and Gift Tax Exemption?
The federal estate and gift tax exemption determines how much you can transfer during life or at death without owing federal transfer taxes. For small business estate tax planning, understanding this number is critical—it sets the ceiling for tax-free wealth transfers.
The Federal Exemption Allows $13.99 Million Per Individual and $27.98 Million Per Married Couple in 2025
In 2025, each individual can transfer $13.99 million free of federal estate and gift tax. Married couples effectively double this to $27.98 million through portability. In 2026, the exemption jumps to $15 million per person—$30 million for couples. Anything above these thresholds faces a 40% tax rate. The step-up in basis at death remains intact, meaning heirs receive assets at current market value rather than the original purchase price. This makes estate tax planning for business owners especially valuable when transferring appreciated business interests.
The One Big Beautiful Bill Act made the $15 Million Exemption Permanent, starting January 2026
President Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4, 2025. The law raised the federal exemption to $15 million effective January 1, 2026, with annual inflation adjustments thereafter. Unlike previous legislation, there’s no sunset provision. The exemption won’t automatically drop unless Congress passes new laws. This permanence changes the calculus for business succession planning Maryland owners face—you have more certainty, but state-level taxes still demand attention.
Lifetime Gifts and Bequests at Death Draw From One Unified Exemption
The federal system uses a unified credit. Every dollar you gift during life reduces the exemption available at death. The generation-skipping transfer (GST) exemption also rises to $15 million in 2026 with inflation indexing. However, GST exemption is not portable between spouses—use it or lose it. If you already used $13.99 million in 2025, you’ll have an additional $1.01 million available in 2026. This creates flexibility for your estate planning gift strategy, allowing phased transfers over multiple years.
Why Are Maryland Small Business Owners Especially Affected by These Estate Tax Changes?
Maryland creates unique challenges for business owners. Understanding Maryland estate taxes 2026 and beyond requires recognizing that state-level exposure often hits long before federal thresholds become relevant.
Maryland Is the Only State With Both Estate and Inheritance Taxes
Maryland stands alone. It’s the only state imposing both an estate tax and an inheritance tax. The estate tax exemption sits at $5 million per person with a 16% rate—and unlike the federal exemption, it’s not adjusted for inflation. The inheritance tax adds another layer: 10% on transfers to non-exempt beneficiaries. Spouses, children, parents, grandchildren, and siblings pay nothing. But nieces, nephews, friends, and unmarried partners face the full 10%. The estate pays estate tax; beneficiaries pay inheritance tax unless the Will specifies otherwise. This dual system makes small business estate tax planning essential for Maryland residents.
A Closely Held Business Can Easily Push Estates Over Maryland’s $5 Million Threshold.
Business value accumulates faster than many owners realize. Add a home, retirement accounts, and life insurance, and you’re approaching Maryland’s limit quickly. Married couples can port unused exemptions to reach $10 million combined. But consider this: an individual with just $2.5 million in assets—modest by business owner standards—would owe nothing under current law. If proposals to lower the exemption to $2 million ever pass, that same estate would face $80,000 in taxes. For estate tax planning for business owners, monitoring Maryland legislative changes is as important as tracking federal law.
Poor Planning Exposes Heirs to Both State Taxes Simultaneously
Being under the federal exemption doesn’t protect you from Maryland. A couple worth $2.5 million leaving assets to nieces and nephews—common when there are no children—could trigger $250,000 in inheritance tax alone. That’s a quarter of the estate gone to taxes that proper planning could minimize. Business succession planning that Maryland owners undertake must address both layers. Federal planning without state coordination leaves money on the table and burdens on heirs.
Who Should Be Thinking About Using the $13.99 Million Gift Window?
Not every business owner needs aggressive gifting strategies. But many who assume they’re safe underestimate their exposure—especially at the state level. An honest net worth assessment reveals who should act now.
Unmarried Individuals Under $15 Million Face Minimal Federal Risk but Significant Maryland Exposure
The math seems simple. If your net worth falls below $15 million, the federal estate tax likely won’t touch you. But Maryland’s $5 million threshold changes everything. A business worth $3 million plus a home, retirement accounts, and life insurance can easily breach that limit. Small business estate tax planning isn’t just for the ultra-wealthy—it’s for anyone approaching Maryland’s lower bar. Don’t let federal headlines distract you from state-level reality.
Business Growth, Real Estate Appreciation, and New Maryland Taxes Compound the Problem
Assets grow. A business valued at $2 million today could double in a decade. Real estate appreciates. Retirement accounts compound. Meanwhile, Maryland’s new tax brackets squeeze available cash. As of July 1, 2025, income between $500,000 and $1 million faces a 6.25% rate. Above $1 million, it’s 6.5%. A 2% capital gains surtax hits anyone with federal AGI over $350,000. These increases erode the disposable income you’d use for lifetime gifting and reduce the net value reaching heirs. Your estate planning gift strategy must account for shrinking transfer capacity alongside growing asset values.
Married Couples Should Coordinate to Capture Both Federal and Maryland Exemptions
Married couples hold significant advantages. The combined federal exemption reaches $30 million in 2026. Maryland portability provides $10 million for couples. But these benefits require coordination. Each spouse should consider using their own exemption through separate trusts or gifts. Business succession planning, Maryland couples undertake works best when both exemptions are actively deployed rather than left to chance at the second death.
Why Might This Be the “Last Chance” Before Estate Taxes Increase?
The OBBBA eliminated the 2025 sunset deadline, but that doesn’t mean permanence. Political winds shift. Planning now captures current advantages before potential changes erode them.
Future Legislation Could Reduce Exemptions or Raise Rates Without Warning
Congress giveth and Congress taketh away. The $15 million exemption is “permanent” only until new legislation changes it. High net worth individuals should plan within the next two years while current structures remain intact. Grantor trusts, SLATs, and GRATs all function as designed under current law. But proposals to limit or eliminate these tools surface regularly. Estate tax planning for business owners works best when executed during periods of legislative clarity—like now.
Using Your Exemption Today Locks In Current Limits Regardless of Future Changes
Once you make a completed gift, it’s done. Future exemption reductions don’t claw back prior transfers. The OBBBA imposed no new taxes on trusts, preserving existing strategies. The December 31, 202,5, deadline that created urgency for years has been eliminated. That removes panic but not prudence. Your estate planning gift strategy benefits from acting while rules are favorable rather than waiting for less generous terms.
Waiting Risks Higher Valuations, New Taxes, and Reduced Planning Flexibility
Business values rise. The gift you could make today for $5 million might cost $7million inf exemptions in three years. Meanwhile, Maryland keeps adding friction. A 3% sales tax on IT and data services took effect July 1, 2025—hitting tech-reliant businesses directly. Vehicle excise taxes rose from 6% to 6.5%, with a new 3.5% tax on rentals. These incremental costs reduce liquidity and complicate transfers. Business succession planning for Maryland owners becomes more expensive with each passing year.
How Can Small Business Owners Take Advantage of the $13.99 Million Gift Limit Before Estate Taxes Increase?
Strategy matters as much as timing. The goal isn’t just using exemption—it’s using it efficiently. Smart approaches stretch your $13.99 million further and remove future growth from your taxable estate.
Accelerating Gifts Locks In Current Rates While Preserving Future Flexibility
You don’t have to use all your exemptions at once. But waiting offers no advantage when rates and rules could tighten. Consider accelerating gifts now while rebalancing portfolios toward tax-efficient assets. Small business estate tax planning works best as an ongoing process, not a single event. Use what makes sense today. Reserve the rest for 2026’s additional $1.01 million or future opportunities.
Discounted Business Interest Gifts and QSBS Expansions Multiply Your Exemption’s Power
A $10 million business interest might transfer for $6 million of exemption after minority and marketability discounts. That’s $4 million of extra capacity. The OBBBA also expanded Qualified Small Business Stock benefits effective 2026. The holding period drops from five years to three. The capital gain exclusion rises from $10 million to $15 million. The gross asset limit increases from $50 million to $75 million with inflation indexing. These changes make estate tax planning for business owners significantly more powerful for qualifying companies.
Gifts Today Remove All Future Appreciation From Your Taxable Estate
What you give away stops growing in your estate and starts growing outside it. A business interest worth $5 million today that doubles over fifteen years represents $5 million of tax-free transfer. Grantor trust status amplifies this—you pay income taxes on trust earnings, further reducing your estate while assets grow tax-free for beneficiaries. The Section 199A 20% qualified business income deduction is now permanent, improving cash flow for ongoing gifting.
Coordinated Spousal and Family Planning Compounds: These Advantages
Married couples should synchronize their estate planning gift strategy. The SALT deduction cap rises to $40,000 for 2025-2029, increasing 1% annually before reverting to $10,000 in 2030. This creates a window to adjust charitable giving and offset taxable income while funding family transfers. Business succession planning in Maryland couples execute together to captures both exemptions systematically rather than leaving value stranded at the second death.
What Gifting Strategies Work Best for Closely Held Business Interests?
Transferring business interests differs from gifting cash or securities. Ownership structures, valuation methods, and control provisions all affect whether gifts achieve their intended tax benefits. Getting these elements right is essential for estate tax planning for business owners.
Minority and Lack-of-Marketability Discounts Stretch Exemption When Supported by Professional Appraisals
A 30% ownership stake isn’t worth 30% of total business value. Minority interests lack control. Closely held shares can’t be sold on public markets. These realities justify valuation discounts—often 20-40% combined. But discounts require a defensible methodology. Options include fixed price, formula-based, or independent appraisal mechanisms. Professional appraisals support gift tax returns and withstand IRS scrutiny. Your estate planning gift strategy gains significant leverage through properly documented discounts.
Family Limited Partnerships and LLCs Create Flexible Structures for Phased Transfers
Entity structure enables controlled gifting. Family limited partnerships and LLCs allow parents to transfer limited interests while retaining general partner or manager control. Transfer restrictions limit what recipients can do with their interests. Purchase obligations—mandatory or optional—govern what happens at triggering events. Small business estate tax planning through these entities requires careful drafting but provides both tax efficiency and operational continuity.
Buy-Sell Agreements Establish Defensible Values and Transition Mechanisms
Every business with multiple owners needs a buy-sell agreement. These contracts establish valuation methodology and purchase terms for triggering events: death, disability, retirement, involuntary termination, divorce, or bankruptcy. Payment terms specify lump sum or installment options with appropriate interest rates. For business succession planning, Maryland owners undertake, buy-sell agreements provide the valuation anchor that supports gift tax positions and ensures smooth ownership transitions.
Retained Control Remains Possible Through Proper Structure and Professional Management
Giving away value doesn’t mean surrendering all authority. Grantor-retained structures, voting versus non-voting share classes, and management agreements preserve operational control while completing gifts for tax purposes. Life insurance provides buyout liquidity without requiring asset sales. Professional trustees can manage gifted business interests, protecting both tax benefits and business operations. The key is structuring gifts as genuinely completed transfers while maintaining practical influence through legitimate mechanisms.
How Can Trusts Help Small Business Owners Use the $13.99 Million Exemption Strategically?
Trusts transform simple gifts into sophisticated wealth transfer vehicles. Each structure offers distinct advantages for small business estate tax planning. Understanding the tradeoffs helps you select the right tool for your situation.
Spousal Lifetime Access Trusts (SLATs) Remove Assets From Your Estate While Preserving Family Access
SLATs let you have it both ways—mostly. You gift assets to an irrevocable trust for your spouse’s benefit, locking in your $13.99 million exemption. Your spouse can receive distributions for health, education, maintenance, and support. Assets and all future appreciation escape estate taxation. Grantor trust status means growth occurs tax-free. But risks exist. The gift is irrevocable. Divorce eliminates your indirect access. There’s no step-up in basis at death. If both spouses create SLATs, careful drafting must avoid the reciprocal trust doctrine, which could collapse both trusts back into your estates. For estate tax planning for business owners, SLATs balance access against tax efficiency better than most alternatives.
Intentionally Defective Grantor Trusts (IDGTs) Transfer Appreciation Above the AFR Tax-Free
IDGTs use a powerful quirk in tax law. You sell business interests to the trust in exchange for a promissory note bearing the Applicable Federal Rate. All appreciation above that rate passes to beneficiaries free of transfer tax. Better still, you pay income taxes on trust earnings—further depleting your taxable estate while assets grow undiminished for heirs. Note terms offer flexibility. The tradeoff: you lose control over transferred assets, the transfer is irrevocable, and beneficiaries receive your original basis rather than stepped-up value. Business succession planning for Maryland owners often centers on IDGT sales of discounted business interests.
Grantor Retained Annuity Trusts (GRATs) Capture Business Growth With Minimal Gift Tax Cost
GRATs excel when you expect rapid appreciation. You transfer assets to the trust and receive annuity payments for a set term. If assets grow faster than required payments, the excess passes to beneficiaries gift-tax-free. Zeroed-out GRATs eliminate gift tax on funding. Rolling GRATs capture ongoing appreciation through successive short-term trusts. The strategy works best for businesses expecting significant growth. Risks include administrative complexity, poor results if assets depreciate, and inefficiency for generation-skipping transfers. Your estate planning gift strategy should consider GRATs when business value is poised to increase substantially.
Irrevocable Life Insurance Trusts (ILITs) Provide Liquidity and Creditor Protection for Heirs
ILITs don’t reduce estate taxes—they pay them. Death benefits held in an ILIT escape estate taxation entirely. Proceeds provide cash for estate taxes and business buyouts without forcing asset sales. The trust can purchase business interests from your estate, providing liquidity to pay taxes while keeping the business in family hands. Beneficiaries receive creditor protection. The downsides: life insurance premiums can be expensive, and irrevocability makes adjustments difficult as family dynamics evolve. For small business estate tax planning, ILITs complement wealth transfer trusts by solving the liquidity problem that those strategies can create.
Lock In Your $13.99 Million Opportunity With ZM Law Group.
The current estate and gift tax landscape gives Maryland small business owners an unusually powerful opportunity to move business value and future growth out of their taxable estates. By understanding how the $13.99 million exemption works, how Maryland’s estate and inheritance taxes interact with it, and which trust and entity strategies make sense for closely held companies, you can turn a looming tax problem into a long-term planning advantage for your family.
At ZM Law Group, we help business owners translate complex tax rules into clear, practical steps—valuing the business, designing smart gifting structures, and coordinating trusts, buy–sell agreements, and liquidity planning. If you are wondering whether now is the time to act, we invite you to reach out to us today. Contact us to schedule a consultation so we can review your situation, outline your options, and build a customized plan that protects both your company and the people you care about most.
