New Ruling Could Increase Estate Tax Liabilities Is Your Business at Risk?
The U.S. Supreme Court recently handed down a decision that will significantly impact buy-sell agreements and estate valuations. Connelly v. United States is the Court’s latest in its string of major decisions in 2024 impacting California businesses. It will fundamentally alter how life insurance proceeds are treated in stock redemption agreements for estate tax purposes. CONNELLY V. UNITED STATES The case involves two brothers, Michael and Thomas Connelly, co-owners of Crown C. Supply in Missouri. They had a stock purchase agreement ensuring the company stayed in the family after one’s passing. If the surviving brother declined to buy the shares, the company would use the deceased’s life insurance proceeds for redemption. When Michael died in 2013, Crown C. Supply used $3 million in life insurance proceeds to redeem his shares, making Thomas the sole owner. Michael’s estate
excluded the proceeds from its federal estate tax valuation, citing past case law, but the IRS disagreed, arguing they should be included. The Supreme Court ruled in favor of the IRS, deciding that life insurance proceeds used for share redemption must be part of the estate’s valuation. The ruling overturned precedent by requiring shares to be valued before redemption, treating the proceeds as non-operating assets. WHAT THIS MEANS FOR CALIFORNIA BUSINESS OWNERS California business owners who use life insurance-funded buy-sell agreements to plan for ownership transitions need to reconsider their structure after this decision. This ruling increases estate tax liabilities when using this structure, reducing the remaining estate to be passed on to heirs. This is a particular issue for closely held businesses where liquidity is an issue.
Business owners affected by this ruling should consult a California business attorney to review their buy-sell agreements, especially those using life insurance for stock redemptions. Alternatives like cross-purchase agreements or different funding methods can help minimize the impact. The surest way to ensure your business isn’t negatively impacted by the Connelly decision is to work with an attorney who understands contracts, business law, estate planning, and tax strategy. At Dahl Law Group, our knowledgeable team has experience in all relevant areas of the law to help your business handle the changes brought on by this Supreme Court decision. Contact our team at our offices in Sacramento or San Diego to ensure your business isn’t facing unnecessary tax liabilities due to the structure of business agreements.
Creamy Tortellini Vegetable Soup
SUDOKU
Inspired by EatingWell.com
Ingredients • 2 tbsp extra virgin olive oil • 1 cup peeled and chopped carrots • 1 cup chopped yellow onion • 1 tbsp finely chopped garlic • 3 cups reduced-sodium vegetable broth • 1 (15-oz) can (no salt added) diced tomatoes with basil, garlic, and oregano
• 2 tbsp fresh basil, chopped • 1/2 tsp ground pepper • 1/4 tsp plus 1/8 tsp salt • 1 (9-oz) package refrigerated cheese tortellini • 1 (5-oz) package baby spinach • 1 cup heavy cream
Directions 1. In a large Dutch oven, heat olive oil over medium-high heat. Add carrots and onions and cook for about 5 minutes or until onions are softened. Add garlic and cook for 1 minute or until fragrant. 2. Add broth, tomatoes, fresh basil, pepper, and salt. Bring to a boil, stirring occasionally. Reduce heat to medium, cover, and let simmer for about 5 minutes or until carrots are slightly tender. 3. Stir in tortellini. Cook until pasta is tender. Reduce heat to medium-low. 4. Add baby spinach and cream. Cook until spinach is wilted. Serve and garnish with additional basil if desired.
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