Passing Down the Family Farm or Business: Crucial Estate Planning for Eastern Shore Families

Along the Chester River corridor, from the grain farms of Kennedyville to the crabbing operations off Comegys Bight, family-owned land and businesses represent far more than economic assets. They are legacies — held across generations by the same surnames that appear on Kent County deed books stretching back centuries. But without a carefully constructed estate plan, that legacy is vulnerable to tax liability, probate delays, and the kind of sibling disputes that no family anticipates and every estate attorney has seen.

This guide is written specifically for Eastern Shore families — farmers, watermen, small business owners, and landowners in Kent County and the surrounding region — who want to understand their options and take action before a crisis forces the issue.

Why the Eastern Shore Is Different

Maryland’s Eastern Shore presents a unique estate planning environment. Land values in Kent County have climbed steadily, driven by agricultural productivity, proximity to the Chesapeake Bay, and the desirability of rural acreage among out-of-state buyers.¹ That appreciation is a double-edged sword: it grows family wealth, but it also grows potential estate tax exposure and complicates fair distribution among heirs.

Many farm and fishing families operate under tight cash-flow conditions. A property that appraises at $2 million on paper may generate modest annual income relative to its value. When estate taxes or the costs of probate come due, heirs are sometimes forced to sell the very land they inherited simply to pay the bill — a phenomenon so common it has a name among agricultural attorneys: the “estate sale spiral.”²

Maryland compounds this challenge with its own estate tax, separate from the federal system. While the federal exemption sits at $13.61 million per individual as of 2024, Maryland’s exemption is only $5 million — meaning many Eastern Shore estates that would sail through federal review still face a state-level tax bill.³ For a multi-generational farm or a well-established business, that can mean six figures owed within nine months of death.

Maryland is also one of only a handful of states that levies both an estate tax and an inheritance tax. Proper planning can legally minimize or eliminate both. Without it, your estate pays both.

The Core Problem: Farms and Businesses Don’t Divide Easily

Financial assets — stocks, savings accounts, retirement funds — can be apportioned among heirs with relative precision. A farm cannot. Neither can a family crabbing license, a processing facility, or a Main Street business in Chestertown that has operated under the same name for thirty years.

When a parent dies without a clear succession plan, courts and families face a fundamental conflict: the heir who wants to continue the operation versus the heirs who need liquidity. In Maryland, any co-owner of real property can petition for partition — a legal proceeding that can force a sale of the property over the objection of other owners.⁴ Courts have divided farmland this way for generations. The family business, once sold, rarely comes back.

The American Farmland Trust estimates that 40 percent of all U.S. farmland will change hands within the next two decades, largely through estate transfers, and that a significant portion of that land will leave agricultural use permanently.⁵ Maryland’s own Department of Agriculture has acknowledged the succession challenge as one of the primary threats to the state’s farming economy.⁶

Essential Tools for Succession Planning

Revocable Living Trusts

A revocable living trust is one of the most effective instruments for avoiding probate entirely. Unlike a will — which must pass through Maryland’s Orphans’ Court process before assets can transfer — a trust allows property to move directly to named beneficiaries at death, without court supervision, without public record, and without the delays (often six months to over a year) that probate imposes.⁷

For farm families, this matters enormously. During probate, farm operations must often continue without clear legal authority over assets. Equipment purchases, lease renewals, and crop-year financing decisions can all be complicated by an unresolved estate. A properly funded trust eliminates that limbo.

Qualified Use Valuations Under IRC § 2032A

Federal tax law provides a powerful estate tax break specifically designed for family farms and closely held businesses. Under Internal Revenue Code Section 2032A, qualifying agricultural and business property can be valued based on its current use rather than its highest and best use at the time of death.⁸

In practical terms: if your Kent County farmland would be worth $3 million to a developer but only $1.2 million as operating farmland, the estate can value it at $1.2 million for tax purposes — provided the heirs continue farming it for at least ten years. The maximum reduction allowable under 2032A is $1,390,000 as of 2024, indexed for inflation. This is one of the most underutilized provisions in agricultural estate planning.⁹

Family Limited Partnerships and LLCs

Transferring a farm or business into a Family Limited Partnership (FLP) or a family-held LLC allows the senior generation to gift ownership interests to heirs gradually — often at a valuation discount — while retaining management control during their lifetime.¹⁰

Minority interests in a closely held entity are generally valued at a discount relative to their proportional share of underlying assets, because a minority owner cannot force a sale or control operations. These “lack of control” and “lack of marketability” discounts, typically ranging from 15 to 40 percent, can significantly reduce the taxable value of transferred interests.¹¹ An LLC also formalizes the business structure, making it easier to document ownership, bring in the next generation, and protect against creditor claims.

Grantor Retained Annuity Trusts (GRATs)

A GRAT is an irrevocable trust into which you transfer an appreciating asset — say, farmland expected to rise in value or a business with growing revenues. You receive a fixed annuity payment back for a set term; at the end of the term, any remaining value passes to heirs with little or no gift tax.¹² GRATs work best when the transferred asset appreciates faster than the IRS hurdle rate, making them a tool worth discussing with your attorney when interest rates are favorable.

Agricultural Conservation Easements

Maryland’s agricultural preservation program — one of the nation’s oldest and most active — allows landowners to sell development rights to the state or a land trust while retaining ownership and the right to farm.¹³ The proceeds from selling a conservation easement can fund estate taxes or equalize inheritances among heirs: one heir continues farming while others receive a cash equivalent.

Additionally, the donated portion of an easement may generate a charitable deduction for federal income tax purposes, and an easement-encumbered property’s value for estate tax purposes is reduced to reflect the restriction.¹⁴ Kent County has among the highest per-acre easement values in the state through the Maryland Agricultural Land Preservation Foundation (MALPF).

Buy-Sell Agreements for Family Businesses

If you co-own a business — whether a farm operation, a retail establishment, or a service company — a buy-sell agreement is essential. This legally binding document establishes what happens to an owner’s interest upon death, disability, divorce, or retirement: who can buy it, at what price, and on what terms.¹⁵

Without one, a deceased owner’s interest passes to their estate and then to heirs who may have no interest in or aptitude for the business. Co-owners may find themselves in business with a deceased partner’s surviving spouse or estranged children — a situation that frequently ends in litigation or a forced sale. Buy-sell agreements are often funded with life insurance, ensuring surviving owners have the capital to purchase the departing owner’s interest promptly.

The Maryland Probate Process: What Your Family Faces Without a Plan

Maryland’s estate administration is governed by the Estates and Trusts Article and administered through the Orphans’ Court in each county.¹⁶ In Kent County, that court sits right here in Chestertown. The process is public — any interested party can review the inventory of your estate’s assets — and it takes time.

A typical Maryland probate involves filing an inventory of assets within three months of appointment, publishing notice to creditors, waiting a six-month creditor claim period from the date of death, resolving any disputes, and obtaining court approval before distribution.¹⁷ For a complex estate involving real property, a business, or disputed valuation, the timeline stretches further.

During this period, family members seeking to operate the farm or business face legal uncertainty. A comprehensive estate plan — anchored by a trust, supported by properly titled assets, and paired with durable powers of attorney — keeps the family in control from day one.

Planning for Incapacity, Not Just Death

One aspect of estate planning that farm and business families often overlook is the period before death — the months or years during which a family patriarch or matriarch may become incapacitated due to illness or injury.

Without a durable financial power of attorney, family members cannot legally manage the farm’s finances, sign operating loan renewals, or sell grain on behalf of an incapacitated owner. A court-supervised guardianship proceeding may be required — an expensive, time-consuming process that puts a judge, rather than the family, in control of the business.¹⁸

A properly drafted durable power of attorney grants a trusted agent authority to act immediately, without court involvement, and can include specific provisions tailored to agricultural operations: authority to manage crop insurance, sign USDA program enrollment forms, and operate farm equipment accounts.

Treating Heirs Fairly Without Selling the Farm

One of the most emotionally charged challenges in farm and business succession is fairness. When one child has worked the land for decades and another has built a career elsewhere, how do you distribute assets equitably without forcing a sale?

A few strategies help resolve this:

Life insurance as an equalizer. A policy owned by an irrevocable life insurance trust (ILIT) can provide a cash inheritance to non-farming heirs while the farm passes intact to the successor — and the ILIT structure keeps the death benefit outside your taxable estate.¹⁹

Compensating labor with an unequal share. Formalizing through a lifetime employment agreement and documented salary arrangements — with an explicit acknowledgment in the estate plan — reduces the likelihood of a post-death dispute when one heir has worked for below-market wages for decades.

Conservation easement proceeds. Selling a partial easement on the most development-pressured portion of the property generates cash that can be distributed to non-farming heirs, while the encumbered farmland passes to the successor at a lower taxable value.

Installment sales between family members. The farming heir purchases the property from the estate over time, generating income for non-farming beneficiaries without requiring an outside sale. Properly structured, an installment sale can qualify for favorable capital gains treatment.²⁰

Don’t Wait for a Health Event to Start Planning

Estate planning conversations often begin in the wrong order. A diagnosis, a hospitalization, or a sudden death prompts the call to an attorney — but by then, options have narrowed. Transferring interests into an FLP, funding a GRAT, or completing a conservation easement application through MALPF all require time and a legally competent grantor. MALPF applications alone can take years from submission to closing.

The current federal estate tax exemption, significantly elevated by the 2017 Tax Cuts and Jobs Act, was scheduled to sunset at the end of 2025, potentially dropping the per-person exemption substantially if Congress does not act.²¹ Planning now — rather than waiting on legislative outcomes — protects your family under current law and positions you for whatever changes follow.

The families who navigate succession most successfully are those who began the conversation early, while the senior generation was still healthy and actively farming, and who revisited the plan regularly as the law changed and the business grew.

Your family built it. Let’s make sure it stays in the family.

If you own farmland, a working waterfront operation, or a small business on the Eastern Shore, Mabrey Law can help you design an estate plan that protects what you’ve built — and makes the transition to the next generation as smooth as possible.

Schedule a Consultation →

Chestertown — 107 Court St, Chestertown, MD 21620 · (410) 778-1630

Pasadena — 8611 Fort Smallwood Rd C, Pasadena, MD 21122 · (443) 702-7708

This article is for general informational purposes only and does not constitute legal advice. Consult an attorney for guidance specific to your situation.

Frequently Asked Questions

Do I need an estate plan if I already have a will?

A will is a starting point, not a complete plan. For farm and business owners, a will alone has significant limitations — it still goes through probate, it becomes public record, and it cannot help your family manage the operation during the months the estate is being administered. Most Eastern Shore landowners benefit from a combination of a revocable living trust, a durable power of attorney, and a will working together.

What happens to my farm if I die without any estate plan in Maryland?

Your property passes under Maryland’s intestacy laws, which divide assets among heirs in a fixed formula regardless of your wishes. More critically, the estate goes through Orphans’ Court probate in Kent County, which is public, can take a year or more, and leaves your family without clear legal authority to operate the business in the meantime. If heirs disagree on what to do with the land, any one of them can petition the court to force a sale.

How is Maryland’s estate tax different from the federal estate tax?

The federal estate tax exemption is $13.61 million per person as of 2024 — so most estates don’t trigger it. Maryland’s exemption is only $5 million, meaning a farm or property portfolio that clears the federal threshold can still owe significant state tax. Maryland also has a separate inheritance tax depending on who inherits. Planning addresses both.

Can I reduce what my farm is worth for estate tax purposes?

Yes — and this is one of the most valuable tools available to Eastern Shore families. Under IRC § 2032A, qualifying farmland can be valued at its current agricultural use rather than its development value. If your land is worth $3 million to a developer but $1.2 million as a working farm, the estate can use the lower number, provided heirs continue farming for at least ten years. The savings can be substantial.

What if I want one child to take over the farm but I have other children to provide for?

This is the most common challenge in agricultural succession planning, and there are several ways to handle it fairly. Life insurance held in an irrevocable trust can provide a cash inheritance to non-farming children while the farm passes intact. Conservation easement proceeds, installment sale arrangements, and clearly documented employment compensation for the farming heir are other tools that help balance the outcome without forcing a sale.

What is a conservation easement and should I consider one?

A conservation easement is an agreement where you sell or donate your land’s development rights to the state or a land trust, while keeping ownership and the right to farm. Maryland’s program through MALPF is one of the most active in the country, and Kent County easement values are among the highest in the state. Beyond preserving the land, easement proceeds can fund estate taxes and equalize inheritances — making it both a conservation tool and an estate planning tool.

Does my business need a buy-sell agreement?

If you have any co-owner — a sibling, a business partner, anyone — yes. Without one, a deceased owner’s interest passes to their heirs, who may have no interest in or knowledge of the business. Surviving co-owners can end up in business with someone they never chose. A buy-sell agreement sets the terms in advance: who can buy the interest, at what price, and how it’s funded, usually through life insurance.

When should I start estate planning?

As early as possible, and well before any health event forces the issue. Some strategies — like transferring interests into a family LLC or completing a conservation easement application — take years to execute properly. The federal estate tax exemption is also subject to change; the elevated limits from the 2017 Tax Cuts and Jobs Act were set to sunset, and waiting on legislative outcomes is a risk you don’t need to take. The best time to plan is when you have the most options available to you.

How do I get started with Mabrey Law?

Reach out to schedule a consultation at our Chestertown office — 107 Court St, Chestertown, MD 21620, (410) 778-1630 — or our Pasadena location at 8611 Fort Smallwood Rd C, (443) 702-7708. You can also contact us directly at davidnmabreylaw.com/contact-us.

Sources

1. Maryland Department of Agriculture, Maryland Agricultural Statistics, 2023 Annual Report. mda.maryland.gov.
2. American Farm Bureau Federation, Keeping the Farm in the Family: Estate Planning Essentials (2022). fb.org.
3. Md. Code Ann., Tax-Gen. § 7-309; IRS Rev. Proc. 2023-34 (2024 federal exemption figures).
4. Maryland Code, Real Property Article § 14-107 (partition of real property).
5. American Farmland Trust, Farms Under Threat: The State of the States (2020). farmlandinfo.org.
6. Maryland Department of Agriculture, Beginning Farmer Succession and Transfer Program. mda.maryland.gov.
7. Maryland Estates and Trusts Article § 9-102; Maryland Rules, Title 6 (estate administration).
8. Internal Revenue Code § 2032A (special use valuation for farm and business real property).
9. IRS Rev. Proc. 2023-34 (§ 2032A indexed ceiling for 2024).
10. Akers, Family Limited Partnerships, American Bar Association Section of Real Property, Trust and Estate Law (2023).
11. Estate of Powell v. Commissioner, 148 T.C. 392 (2017).
12. IRC § 2702; Treas. Reg. § 25.2702-3 (grantor retained annuity trust rules).
13. Maryland Agricultural Land Preservation Foundation, Program Overview. mda.maryland.gov/malpf.
14. IRC § 170(h) (conservation easement deduction); Md. Code Ann., Tax-Prop. § 8-211.
15. Stuckey, Buy-Sell Agreements for Closely Held Businesses, 4th ed. (Practising Law Institute, 2022).
16. Maryland Estates and Trusts Article §§ 5-101 et seq.; Maryland Courts Article § 2-302.
17. Maryland Estates and Trusts Article § 7-103 (inventory); § 8-103 (creditor claim period).
18. Maryland Code, Estates and Trusts Article § 13-201; § 15-102 (guardianship of the property).
19. IRC § 2042; IRC §§ 2036–2038 (ILIT planning to exclude life insurance proceeds).
20. IRC § 453 (installment sales); IRC § 1231 (treatment of gains on farm property).
21. Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97 § 11061 (sunset provision).