September 17, 2024
By: Thomas S. Vangel, James F. Radke, and William A. Morgan
Attorneys Tom Vangel, Jamie Radke, and Bill Morgan co-authored an article titled, "Connelly Decision Impacts Succession Planning," for Massachusetts Auto Dealer on the topic of "buy-sell" agreements in succession planning in light of the Connelly v. United States (144 S. Ct. 1406) decision.
In the article, Tom, Jamie and Bill assert that the Supreme Court's June holding in Connelly v. United States requires revisiting dealers' succession plans based on business-owned life insurance. They explain that before Connelly, many stockholder redemption agreements funded by corporate-owned life insurance were implemented on the assumption that the insurance proceeds received by a corporation upon a shareholder's death would have no effect on the value of the deceased shareholder's stock because the corporation's obligation to redeem the stock on the corporation's balance sheet would offset the value of the insurance proceeds.
However, Connelly decimates that advantageous tax treatment, which will result in higher estate taxes and reduced inheritances to the decedent's loved ones. This decision highlights the importance of careful coordination with business owners' business succession and estate planning, with the potential need to restructure the ownership and use of life insurance policies.
In the article, Tom, Jamie and Bill describe Connelly v. United States in detail and explain a possible work-around to this decision through the use of cross purchase agreements rather than corporate redemptions.
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