On June 6, the U.S. Supreme Court affirmed the 8th U.S. Circuit Court of Appeals’ decision in Connelly v. United States. This directly impacts the estate tax valuation of businesses engaged in stock redemption/entity purchase agreements funded with life insurance.
Critically, a business’s contractual obligation to purchase a deceased owner’s interest will no longer act as a liability that can offset the increase in business value due to the receipt of life insurance proceeds. If the existing buy-sell agreement fails to meet the requirements of IRC Sec. 2703(b) and related case law, the buy-sell agreement will not be binding for federal estate tax purposes and the value of the business may be increased by any life insurance proceeds received.
Archived Bulletin: June 30, 2023
Connelly Case: Life Insurance Proceeds Increase Value of Decedent's Business Interest