{"id":14562,"date":"2024-06-09T12:00:13","date_gmt":"2024-06-09T09:00:13","guid":{"rendered":"https:\/\/ch.jfdi.cc\/?p=14562"},"modified":"2024-06-09T12:00:13","modified_gmt":"2024-06-09T09:00:13","slug":"supreme-court-holds-that-a-corporations-life-insurance-proceeds-used-to-redeem-a-decedents-shares-must-be-included-in-federal-estate-tax-calculation","status":"publish","type":"post","link":"https:\/\/ch.jfdi.cc\/?p=14562","title":{"rendered":"Supreme Court Holds That A Corporation\u2019s Life Insurance Proceeds Used To Redeem A Decedent\u2019s Shares Must Be Included In Federal Estate Tax Calculation"},"content":{"rendered":"

June 6, 2024
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\nConnelly v. United States<\/strong><\/em>, No. 23-146\u00a0<\/strong>\u2013 Decided June 6, 2024
\n<\/strong>Today, the Supreme Court unanimously held that the proceeds from a life insurance policy taken out by a corporation to redeem a decedent shareholder\u2019s stock are a corporate asset for federal estate tax purposes. <\/strong><\/p>\n

\u201cAn obligation to redeem shares at fair market value does not offset the value of life-insurance proceeds set aside for the redemption because a share redemption at fair market value does not affect any shareholder\u2019s economic interest.\u201d<\/em><\/p><\/blockquote>\n

Justice Thomas, writing for the Court
\nBackground:<\/strong>
\nMichael and Thomas Connelly were the sole shareholders of a closely held building supply business valued at just under $4 million. The brothers entered an agreement obligating the corporation to redeem the shares of the first brother to die if the surviving brother declined to purchase them. The corporation then obtained a life-insurance policy on each brother to fund that stock redemption. This is a common practice in family businesses to prevent a decedent\u2019s heirs form selling shares to outsiders.
\nWhen Michael Connelly died, the corporation used the life insurance proceeds to redeem his shares for $3 million. Michael\u2019s estate did not treat the life-insurance proceeds as a net corporate asset because those proceeds were purportedly offset by a corresponding liability to purchase Michael\u2019s shares, and it therefore paid estate taxes based on the corporation\u2019s previous valuation of just under $4 million. The IRS concluded that the $3 million in life insurance proceeds were not offset by the corporation\u2019s obligation to redeem Michael\u2019s shares, such that the corporation was worth just under $7 million. The IRS sent a notice of deficiency to the estate, which paid the deficiency under protest.
\nThe district court granted summary judgment for the IRS and the Eighth Circuit affirmed, holding that the life insurance proceeds were a net asset that increased the corporation\u2019s value.
\nIssue:<\/strong>
\nAre the proceeds of a life insurance policy taken out by a corporation on a shareholder to redeem the shareholder\u2019s stock a corporate asset when calculating the value of a deceased shareholder\u2019s shares for federal estate tax purposes?
\nCourt\u2019s Holding:<\/strong>
\nYes. Life insurance proceeds are an asset that increases a company\u2019s fair market value, and a redemption obligation is not necessarily a liability that offsets that asset.
\nWhat It Means:<\/strong><\/p>\n