In June 2024, the United States Supreme Court issued an important decision in a case called Connelly v. United States. The decision has huge implications for business owners working on their estate plans, and there are several approaches that businesses can take moving forward in light of the decision. Because the decision itself is technical, it can be difficult to parse out how to react. With the right Boulder estate planning attorney, though, you can ensure that your estate plan is appropriately responsive to the Connelly decision. On today’s blog, we offer a brief review of the Connelly decision as well as some ideas for how businesses can review their ownership agreements with the decision in mind.
Legal Landscape Pre-Connelly
As the legal landscape stood before the Connelly decision, it was common for companies with business succession plans to include the use of life insurance policies to fund a buy/sell agreement. In the past, case law has allowed estates to exclude insurance proceeds when valuing business interests in buy/sell agreements. This reality, in turn, has allowed companies to account for life insurance policies without having to worry about the Internal Revenue Service (IRS) including these policies as part of their business valuations. When the life insurance policies were excluded, businesses’ estate tax bills were necessarily lower. This is the background against which the Supreme Court decided Connelly on June 6, 2024.