--- title: "Buy-Sell Agreements After Connelly | Legacy Counsel" description: "Review company-owned life insurance, buy-sell funding, valuation and family liquidity after Connelly before relying on your business succession plan." lang: en json-ld: | [ { "@context": "https://schema.org", "@graph": [ { "@type": "LegalService", "@id": "https://jacobslegacycounsel.com/#legalservice", "name": "Jacobs Legacy Counsel", "alternateName": [ "Legacy Counsel by Jacobs Counsel", "Jacobs Legacy" ], "url": "https://jacobslegacycounsel.com", "description": "Fixed-fee estate planning for high-net-worth families, founders, executives, and professional athletes. 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[Home](/)/ 2. [Journal](/blog)/ 3. BUY Sell Agreements Life Insurance Connelly 1. [Home](/) 2. / 3. [Blog](/blog) 4. / 5. Buy-Sell Agreements and Life Insurance After Connelly Estate Planning · Business Owners # Buy-Sell Agreements and Life Insurance After Connelly Quick answer Company-owned life insurance can affect the estate-tax value of a deceased owner's interest. After Connelly, business owners should review the buy-sell obligation, policy ownership, valuation and available cash together. An agreement's purchase price is not automatically the estate-tax value. Drew Jacobs, Esq. · Legacy Counsel by Jacobs Counsel LLC · Published September 16, 2026 · Last updated September 16, 2026 · 6 min read ## What the Supreme Court decided In Connelly v. United States, decided June 6, 2024, a closely held corporation received life-insurance proceeds and redeemed a deceased shareholder's stock. The Supreme Court held that the corporation's obligation to redeem shares at fair market value did not offset the insurance proceeds when valuing the shares for federal estate tax. The Court did not hold that every redemption obligation can never reduce corporate value. Its decision addressed the arrangement before it. [Read the Supreme Court's opinion](https://www.supremecourt.gov/opinions/23pdf/23-146_i42j.pdf). ## Start with the documents, not the policy amount A buy-sell agreement and an insurance policy can each appear complete while leaving unanswered questions between them. Our recommended review starts with a simple map: Question Document or fact to check Who must buy the interest? Shareholder, operating or buy-sell agreement Who owns the insurance? Current policy ownership record Who receives the proceeds? Insurer's beneficiary confirmation How is the purchase price set? Valuation clause, appraisals and required annual updates What if the funding is insufficient? Payment terms, reserves, borrowing constraints and security Who runs the business in the meantime? Management succession and signing authority What cash reaches the family? Purchase timing, debts, taxes and the rest of the estate plan Do not rely on an old proposal or a policy summary if it conflicts with the current insurer record. Put the actual agreements, amendments and confirmations in the same review file. ## Entity redemption and cross-purchase arrangements raise different questions In an entity redemption, the business buys the departing owner's interest. In a cross-purchase arrangement, other owners buy it. Insurance ownership and beneficiary designations should match the intended funding path. Compare administration as well as tax consequences. With several owners, ask who will keep records, pay premiums and check coverage after changes in ownership. Consider what happens if one person becomes uninsurable, leaves the company or stops paying. A different structure is not automatically the better structure. Before moving an existing policy, have the advisors evaluate tax and insurance consequences. This article does not recommend transferring a policy or adopting a particular structure. ## Separate the contract price from tax valuation An agreement may prescribe a price or formula for a purchase, but federal valuation rules need a separate analysis. Federal tax law can disregard purchase-price restrictions unless the relevant statutory conditions are met; a number in a contract is not enough by itself. [Internal Revenue Code § 2703](https://uscode.house.gov/view.xhtml?req=%28title%3A26+section%3A2703+edition%3Aprelim%29). Ask for a coordinated review of the agreement and a qualified valuation where appropriate. Identify the valuation date, assumptions, update procedure and dispute process. If the document requires the owners to agree on a value annually, find out whether those updates actually happened. ## Model the cash moving through the transition Use a written transition schedule with separate lines for: - Insurance received by each owner, trust or company. - Amount and timing of the purchase payment. - Cash needed for business operations and debt obligations. - Cash available to the estate and family. - Potential federal and state tax liabilities and administration expenses. The point is to identify a shortfall before a transition makes the question urgent. A policy's face amount alone does not show how much the family can spend or whether the business can meet its obligations. ## Review state and federal estate exposure separately The federal basic exclusion for 2026 is $15 million, and the federal analysis also considers prior taxable gifts and other applicable rules. [IRS Form 706 instructions](https://www.irs.gov/instructions/i706). A family below the federal threshold can still need state planning. For example, New York has a separate exclusion and credit phaseout. See [the New York estate-tax cliff](/blog/new-york-estate-tax-cliff). Insurance funding and successor authority remain practical questions even where no estate tax is expected. Residence, the company's structure and ownership, and the family's other assets belong in the same conversation. ## Who inherits and who can operate the business? These should be separate decisions. A family member who receives economic rights may not be the person equipped or authorized to manage payroll, banking, personnel and contracts. The estate documents also need to respect applicable restrictions on ownership transfers. For a family business, discuss the roles of children working inside and outside the company. Consider decision-making, distributions, information rights and a process for resolving disputes. Coordinate those decisions with the company's legal advisors so the estate plan and entity documents give workable instructions. ## A practical review agenda Bring an ownership summary, governing documents, buy-sell agreement and amendments, policy ownership and beneficiary records, recent financial information, any valuation, and the current estate plan. Start intake with a summary rather than uploading confidential financial documents to a public form. Ask the advisors to identify four outputs: the current funding path, any mismatch in documents, the alternatives worth evaluating and who is responsible for the next step. Have estate counsel, company counsel, the CPA, insurance advisor and appraiser coordinate where their work overlaps. Legacy Counsel addresses the estate-planning and family-succession side of that review. Company-side contract and governance work can be coordinated with [Jacobs Counsel](https://jacobscounsellaw.com/services/business-transactions) under an agreed scope. See also [estate planning for business owners](/estate-planning/business-owners). ### Review your buy-sell funding and succession plan. Bring your ownership summary, agreements and policy records. We start by identifying what needs review and who should be involved. [Book an intro call](/book-consultation)[Email us →](mailto:drew@jacobscounsellaw.com) ## Frequently asked questions ### Should every company replace its buy-sell agreement? + No. Review the current structure, funding, valuation process, tax exposure and succession goals before recommending changes. ### Is cross-purchase always the right alternative? + No. Compare tax consequences, policy ownership, administrative burden, premium obligations and the number of owners before choosing an arrangement. ### Does the policy amount guarantee enough cash for the family? + No. Map who receives the proceeds, what the buyer must pay and when, and the separate needs of the company and estate. ### When should the arrangement be revisited? + Review it after meaningful changes in business value, ownership, insurance, family circumstances or the estate plan, and follow any update procedure already required by the agreement. On this page 1. [What the Supreme Court decided](#decision) 2. [Start with the documents, not the policy amount](#documents) 3. [Redemption and cross-purchase arrangements](#structures) 4. [Separate the contract price from tax valuation](#valuation) 5. [Model the cash moving through the transition](#cash) 6. [State and federal estate exposure](#exposure) 7. [Who inherits and who can operate the business?](#successors) 8. [A practical review agenda](#agenda) 9. [Frequently asked questions](#faq) This article is educational and not legal advice. Estate planning, right of publicity, and tax rules vary by state and change over time. Confirm how the law applies to your situation with a qualified attorney before acting. Legacy Counsel Legacy Counsel by Jacobs Counsel LLC. Fixed-fee estate planning, trusts, wills, and generational wealth strategy for high-net-worth families. 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