Editor's note: On June 6, 2024, the U.S. Supreme Court decided Connelly v. United States, 602 U.S. 257 (2024), unanimously holding that life insurance proceeds payable to a closely-held corporation to fund a shareholder buy-sell agreement INCREASE the corporation's estate-tax value, regardless of any contractual obligation to use those proceeds for redemption. The decision invalidated decades of closely-held business succession planning and forced our practice to restructure dozens of client buy-sell arrangements.
The Crown Steel decision in Connelly v. United States ¹ is the most consequential federal estate tax case of the decade for closely-held business owners. Justice Clarence Thomas, writing for a unanimous Court, held that $3 million of life insurance proceeds payable to a closely-held corporation for the purpose of redeeming a deceased shareholder's stock INCREASED the corporation's estate-tax value by the full $3 million, even though the corporation was contractually obligated to use the proceeds to redeem the shares.
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