What Happens to Your LLC When You Die? Business Succession Planning for Maryland Owners

Most Maryland business owners assume their will takes care of the company. It usually does not. Clients come to Grant, Riffkin & Strauss, P.C. with a carefully drafted estate plan leaving "all business interests" to a spouse, and an operating agreement signed years earlier that says something entirely different. The operating agreement wins. Sorting that out after a death costs far more than fixing it while the owner is alive, and it often happens at the worst possible moment for the business.

Does your will control who inherits your LLC?

Only to the extent your operating agreement permits it. An LLC membership interest is contractual property, and the transfer terms in the operating agreement govern what can pass and to whom.

Many agreements contain transfer restrictions written for a different purpose, usually to keep an outside party from buying in. Those same clauses apply on death. A right of first refusal, a mandatory buyout at book value, or a flat prohibition on transfers without unanimous member consent can override what the will says. Read both documents side by side, because a conflict between them is the single most common problem in this area.

What does Maryland law do if the operating agreement is silent?

Maryland's Limited Liability Company Act, found in Title 4A of the Corporations and Associations Article, supplies default rules, and they rarely match what owners expect. The general framework distinguishes between an economic interest and full membership.

Heirs typically receive the economic interest, meaning the right to distributions and the allocation of profits and losses. They do not automatically receive voting rights, management authority, or a seat at the table on major decisions. That requires admission as a member, which generally depends on the operating agreement's terms or the consent of the remaining members. A surviving spouse can end up entitled to the money the company generates while having no ability to influence how it is run.

The estate's obligations continue in the meantime. Maryland LLCs must file an annual report with the State Department of Assessments and Taxation by April 15 each year with a $300 filing fee, and missing it puts the entity's good standing at risk while the estate is still open.

What happens to a single-member LLC?

Single-member LLCs carry the most risk because there are no co-members to consent to anything or keep operations moving. The membership interest becomes a probate asset, and control sits with the personal representative until the estate is administered.

Maryland probate is not fast. The personal representative generally must file an inventory within three months of appointment and a first administration account within nine months. Banks frequently freeze business accounts once they learn of the death, vendors get nervous, and a company that depended on one person for signing authority can stall for a full quarter. Two practical fixes exist: title the membership interest in a revocable living trust so it passes outside probate, or amend the operating agreement to name a successor manager who can act immediately.

How should a buy-sell agreement be funded?

A buy-sell agreement is a contract setting who may buy an owner's interest, what triggers the sale, how the price is determined, and how it gets paid. Life insurance is the usual funding source because it delivers cash exactly when the obligation arises.

Structure matters more than it used to. In Connelly v. United States, decided by the Supreme Court in 2024, the Court held that life insurance proceeds a company receives to fund a redemption of a deceased owner's shares increase the company's value for estate tax purposes, and the redemption obligation does not offset that value. The result was a substantially larger taxable estate than the family anticipated. Entity redemption agreements funded with company-owned insurance should be reviewed against that decision, and cross-purchase arrangements deserve a fresh look.

What taxes apply when a business passes at death?

Maryland imposes an estate tax on estates above $5 million, a threshold that is fixed rather than inflation-adjusted. The federal exemption sits at $15 million per person for 2026 under the law enacted in 2025. A closely held business can push an estate over the state threshold quickly.

Maryland's inheritance tax is the one that surprises people. It applies at 10 percent to property passing to beneficiaries outside the exempt classes, which include spouses, children and other lineal descendants, parents, grandparents, siblings, and stepchildren. A nephew or a longtime key employee receiving an ownership stake is not exempt. Estates that owe federal estate tax also need a defensible valuation, and formal appraisals of a closely held company commonly run several thousand dollars.

How Grant, Riffkin & Strauss, P.C. handles succession planning

Our work starts by reading the operating agreement against the estate plan and identifying where they contradict each other. From there we address transfer provisions, valuation method, funding, and the tax exposure the structure creates, then revisit the plan when ownership, family circumstances, or the value of the business changes.

An LLC interest is often the largest asset a family owns and the least prepared for transfer. If your operating agreement and your will have never been reviewed together, that is the place to start. Contact Grant, Riffkin & Strauss, P.C. to have both documents looked at as one plan.