Boca Raton, FL – March 26, 2024 – Pannone Lopes Devereaux & O’Gara LLC (PLDO) and Starkweather & Shepley Insurance Brokerage, Inc. (S&S) today issued a co-authored White Paper on how an impending U.S. Supreme Court decision in Connelly v. United States (“Connelly”) could impact small- to medium-sized businesses that include a component of life insurance in their buy-sell agreements and operating agreements.
The key question to be addressed during oral arguments on March 27, 2024, is whether proceeds of a key person insurance policy should count toward a company’s valuation for federal estate tax purposes. Depending on the justices’ decision in Connelly, the business and owner’s estate could be exposed to significant tax liability. This landmark case could also trigger the IRS to argue that life insurance proceeds are indeed assets of a company, even if the intention of those proceeds were to be a funding vehicle for the business’s succession plan.
Lessons Learned in Business Succession Planning as Connelly v. United States Unfolds offers key insights and recommendations — from both a legal and insurance perspective — about key personal insurance policies and shareholders agreements, both in the corporate context, as well as within the estate plan of each key shareholder or member. To access the White Paper, click here.
“We urge business owners to review their succession plans and agreements with their insurance, legal and estate advisors, especially if there are changes in ownership or significant revaluations of the underlying business interest,” said PLDO Attorney Leah A. Foertsch. “Importantly, they need to abide by the stated terms and conditions in order to avoid unintended tax consequences.”
“A key person life insurance policy is a combination of life insurance and business insurance. If designed properly, it will provide immediate funds that will help a business recover from any financial loss caused by the death of an owner, partner, or essential employee. When this triggering event occurs, it might be impossible to conduct business as usual. Therefore, it is important that policies are reviewed on a regular basis to ensure that the coverage is still appropriate and that it aligns with the current needs and structure of the overall succession plan”, comments VP, Life/Asset Protection Specialist, Kimberly Muldoon.
