Covered Ground
On a 2024 Supreme Court ruling that quietly changed the math on one of the most common business succession plans.
If you own a business with a partner, there’s a Supreme Court decision from 2024 you should know about. It’s called Connelly v. United States, and it changed the math on one of the most common succession plans out there.
The Connelly Ruling: Why Your Buy-Sell Agreement May Need a Second Look
What a buy-sell agreement does
A buy-sell agreement is the plan for what happens to your share of the business if you die, retire, or leave. A well-built one keeps the business running smoothly and makes sure your family gets fair value for your stake — without a fire sale or a fight.
A lot of these agreements are funded with life insurance. The idea is simple: when an owner dies, the policy pays out, and that money is used to buy their shares. Clean and reliable.
The question is who owns the policy. In many older agreements, the business itself owns the policy and buys back the shares. That structure is exactly what got tested in Connelly.
What the Court decided
Two brothers owned a building supply company. Their agreement said the company would redeem a deceased owner’s shares, funded by a company-owned life insurance policy. When one brother died, the company collected roughly $3 million and bought his shares as planned.
The IRS argued the company was worth more than the family claimed, because that life insurance money was a company asset. The family argued the obligation to buy the shares canceled it out. In June 2024, the Supreme Court unanimously sided with the IRS.
Insurance proceeds count toward company value
Life insurance proceeds a company receives to redeem a deceased owner’s shares count toward the company’s value for estate tax purposes — and the obligation to buy those shares does not offset it.
The result was a larger estate tax bill than the family expected, on a plan that otherwise worked perfectly.
Why this matters to you
This isn’t a niche issue. The reasoning applies to corporations, partnerships, and LLCs. If you have a funded buy-sell agreement where the business owns the insurance, it may now expose your estate to more tax than you planned for.
“Because this was a court ruling rather than a flashy new law, most business owners never got the memo.”
Collin Studemeyer, CLTC
The fixes
There are several ways to restructure so the death benefit does its job without inflating the company’s taxable value. Common paths include a cross-purchase arrangement where owners insure each other directly, a separate insurance LLC that holds the policies, or other tailored structures. The right move depends on how your business is set up and how many owners are involved.
The point is that this is fixable — and it’s usually a straightforward update once someone reviews the existing agreement and policies.
What to do next
Dig out your buy-sell agreement and check who owns the life insurance funding it. If it’s the business, it’s worth a review. I help business owners do exactly this. Reach out and we’ll spend 20 minutes making sure your plan still holds up.
Thanks for reading.
Collin Studemeyer, CLTC
Founder & President · Studemeyer Risk Advisory & Planning
This is general education, not legal or tax advice. Talk with your attorney or CPA about your specific situation.
Is your buy-sell still built right?
If your business owns the policy funding your agreement, let’s spend 20 minutes making sure your plan still holds up.
