In Connelly v. United States,1 the Eighth Circuit Court of Appeals (which includes Nebraska) ruled that life insurance proceeds received from company-owned life insurance (COLI) following the death of a shareholder must be considered a corporate asset in valuing the shares of the corporation’s stock held by the estate of the deceased shareholder. The ruling resulted in a circuit split with the Ninth and Eleventh Circuits, which previously ruled that the value of COLI proceeds are offset by the corporation’s contractual redemption obligation. The court also ruled that the company’s buy-sell agreement was not binding to fix the value of the shares for estate tax purposes, finding that the agreement was not fixed and determinable in determining value since the owners merely determined value by mutual agreement, rather than the mechanisms provided for in the buy-sell agreement. The case impacts closely held business owners and illustrates the importance of thoughtful succession planning and key considerations when using COLI to help finance buyouts. The Supreme Court of the United States (SCOTUS) agreed to hear oral arguments on the dispute on March 27, 2024.

Click here to read the full article co-authored by Senior Counsel Craig W. Benson.