What to Know About Buy-Sell Agreements – Post Connelly

All buy-sell agreements should be reviewed in light of the unanimous Supreme Court decision in Connelly v. United States, dated June 6, 2024.  

The Connelly case involved two brothers, who owned a corporation.  When one brother died, the corporation redeemed his shares by utilizing company-owned life insurance.  The Supreme Court held that insurance proceeds owned by the corporation and used to redeem the majority shareholder must be included in the valuation of the corporation, without an offsetting liability. The inclusion of three million dollars of life insurance in the fair market value of the company resulted in increased estate tax due.

All buy-sell agreements should be reviewed, and consideration should be given to using a cross-purchase plan or life insurance partnership instead of a redemption approach.

The issues presented in Connelly require planning, as the Federal Estate Tax exemption is scheduled to be reduced by one-half on January 1, 2026.