On June 6, 2024, the U.S. Supreme Court decided a case that will affect all business owners that have life insurance-funded buy-sell agreements. Specifically, those agreements commonly referred to as “entity purchases” or “stock redemptions.” In Connelly v. United States, the court addressed the question of whether a corporation’s fair market value, where the corporation has an obligation to redeem a deceased owner’s shares, is impacted by life insurance proceeds received by the corporation and committed to funding the redemption for estate tax purposes. The Court unanimously held that the corporation’s redemption obligation is not a liability that reduces the estate tax value of the decedent’s shares and that the death benefits received by the corporation must be included as part of the estate tax valuation.1 What this means is that the buy-sell agreement for your business may no longer satisfy your objectives.

Contact us as soon as possible to receive a copy of the Connelly vs. United States decision to review, and/or to request a questionnaire to determine what changes you will need to make in order for your current Buy-Sell Agreement to achieve what you originally planned for it to do.