August 22, 2024Mac McLaughlin

The Connelly Decision: Why Closely Held Business Owners Should Review Their Buy-Sell Policies

The Connelly Decision

The Connelly v. United States decision changes how company-owned life insurance affects the estate tax valuation of a deceased owner’s shares (or other interests) in that entity.
Until Connelly, most believed company-owned life insurance did not increase the estate tax value of the shares (or other interests) in the company, so long as the company was subject to a buy-sell agreement requiring it to use the insurance proceeds to redeem (buy back) the deceased owner’s shares.
Business owners should review their buy-sell agreements with their professional advisors, both to avoid unexpected estate tax surprises due to Connelly, as well as potential issues regarding step-up in income tax basis, which might result in capital losses for the estate.

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