Don't Let Your Clients Outgrow Their Business Insurance

Financial advisors are often the first line of defense between closely held business owners and preventable estate tax surprises. One of the most common ways such surprises happen is when buy/sell agreements, their funding and valuations are set up—then never revisited as the company grows.
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The Connelly decision is a clear and current example of the importance of structure and ongoing compliance as much as valuations and coverages. 

On June 6, 2024, the U.S. Supreme Court held that when a corporation receives life insurance proceeds to fund a stock redemption, those proceeds increase the company’s value for estate tax purposes, and the corporation’s redemption obligation does not offset that value. In short: entity‑funded buy/sell arrangements can elevate the taxable value of a decedent’s shares at death.

• The practical impact for advisors: entity‑purchase (redemption) agreements funded by corporate‑owned life insurance can produce higher estate valuations with many stakeholders completely unaware of the risk. This translates to higher estate tax exposure.

Compliance Missteps that Compound Risk

​Even well‑drafted agreements are not viable when they’re not followed. In Connelly, the parties did not keep current a ‘Certificate of Agreed Value’ nor did they obtain the required independent appraisals per the agreement after death—two process misses that proved costly in the audit and litigation that followed.

Your Advisory Plan: Structure, Review Cadence, and Funding

1. Start with a formal valuation: Establish the baseline value and document it within the buy/sell agreement. Then calendar a review cadence (e.g., annually, with third‑party valuations every few years). Align the agreement’s valuation mechanism with what your client will actually follow.
2. Re‑evaluate the funding structure: Entity‑purchase (stock redemption) vs. cross‑purchase or hybrid structures. Consider estate tax implications and liquidity needs.
3. Build in dynamic coverage mechanics: As revenues and enterprise value rise, coverage should ratchet up in a disciplined way.
4. Audit for operational follow‑through: Confirm that owners are executing the agreement’s valuation steps and documenting compliance.

A Quick Checklist You Can Use With Every Business-Owner Client

• Review the buy/sell agreement’s valuation mechanics.
• Identify the funding structure and model potential estate tax outcomes.
• Update coverage amounts to reflect current enterprise value.
• Calendar formal valuations and document compliance.
• Revisit the plan after major events.

Call to Action -For Financial Advisors

Let’s connect. I’ll help you evaluate your client’s buy/sell structure and recommend the best life insurance carriers and product designs to support a dynamic, compliant strategy—so you can confidently make the right recommendation to your client.

Schedule a conversation today to:

• Assess your client’s current agreement and valuation process in light of Connelly.
• Compare funding structures and select carrier/product solutions that align with estate, tax, and ownership objectives.
• Implement a repeatable annual review and coverage increase cadence your client will follow.

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Until Next Time – Good Selling!

Levon Justice
Director of Life Sales
Ohlson Group
317-844-7853