By I’d like to bring your attention to a recent U.S. Supreme Court decision that could significantly impact your buy-sell agreement if it involves life insurance to redeem shares upon your death.
Impact on Estate Tax
The Supreme Court’s ruling in Connelly established that life insurance proceeds used by a company to redeem a deceased owner’s shares increase the company’s value for estate tax purposes. This could result in a higher estate tax liability than anticipated.
Review Your Buy-Sell Agreement
If your buy-sell agreement uses company-owned life insurance for share redemption, reviewing the structure and terms with your estate planning advisor is crucial. The Connelly decision may require changes to ensure the agreement aligns with your estate planning goals.
Consider Alternative Arrangements
One potential alternative is a cross-purchase agreement, where each owner buys insurance on the others. This structure avoids increasing the company’s value with life insurance proceeds and might better align with your estate planning needs.
Time-Sensitive Considerations
Keep in mind that the current federal estate tax exemption is set to decrease after December 31, 2025. This reduction could further impact your estate planning if your buy-sell agreement is not properly adjusted.
If you want to discuss your buy-sell agreement, please call me on my direct line at 408-778-9651.