In June 2024, the Supreme Court ruled in Connelly v. United States that life insurance proceeds received by a corporation to fund a stock redemption agreement increase the value of the company for estate tax purposes. This reversed decades of common planning assumptions and directly affects every business owner who uses corporate-owned life insurance to fund a buy-sell agreement.
The practical impact: if your company owns a life insurance policy on you to buy back your shares at death, the IRS now counts those proceeds as a corporate asset when valuing your estate. That can push the estate above the federal exemption and trigger estate taxes your plan was designed to avoid. For business owners also managing SBA-financed property and the hazard insurance that comes with it, this is one more planning layer that requires coordination between insurance, legal, and tax advisors.
Key Takeaways
- The ruling: Life insurance proceeds held by a corporation increase company value for estate tax purposes
- Who it affects: Business owners with corporate-owned life insurance funding buy-sell agreements
- Tax impact: Can push the estate above the federal exemption and trigger estate taxes
- Fix: Cross-purchase agreements (owners buy from each other, not the corporation) may avoid the issue
- Action: Review all existing buy-sell agreements with tax counsel immediately
Disclaimer: This article is for informational purposes only. Consult our licensed advisors for guidance specific to your situation.
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