Planning Gaps

Business Structure Changes

Legacy planning conversations aren't always easy, but they are some of the most important discussions to have. While families may live miles apart throughout the year, the holidays often bring everyone together. Beyond celebrating traditions and making memories, it's also an ideal opportunity to discuss a family's long-term financial future. Identifying planning gaps now, long before the holidays, can help ensure everyone is prepared to review key decisions when gathered together, giving a family greater clarity and confidence for generations to come.

One planning gap that has received significant attention is the impact of the U.S. Supreme Court's 2024 decision in Connelly v. United States. The Court affirmed that, for federal estate tax purposes, life insurance proceeds received by a business to fund a stock redemption may increase the value of the business without a corresponding reduction for the redemption obligation. The decision underscores an important lesson: even well-intentioned planning can produce unintended tax consequences when agreements are not properly structured or regularly reviewed.

In Connelly, the shareholders failed to consistently follow the valuation provisions outlined in their Buy/Sell Agreement, and the agreement itself did not establish a fixed or determinable purchase price. As a result, the courts concluded that the life insurance proceeds increased the value of the business for estate tax purposes. The case serves as a powerful reminder that outdated or incomplete planning can create significant challenges when an unexpected death occurs.

A Buy/Sell Agreement is more than a legal document—it is a critical component of business succession planning. It establishes how ownership interests will transfer following a triggering event such as death, disability, or retirement and helps provide continuity for the business while protecting the interests of owners and their families. However, its effectiveness depends on regular review and maintenance.

Business valuations should be updated periodically to reflect the company's current value, and changes in ownership structure, entity type, tax law, or funding arrangements should prompt a comprehensive review of the agreement. Failing to keep a Buy/Sell plan current can expose business owners and their families to unnecessary estate taxes, valuation disputes, liquidity challenges, and costly litigation.

The Connelly decision reinforces a broader principle: the greatest risks in estate and business succession planning are often not the plans that were never created, but the plans that were never updated. Regular reviews help ensure that planning documents, ownership structures, funding arrangements, and beneficiary designations continue to align with both your objectives and the evolving legal landscape. Whether you are reviewing an existing Buy/Sell Agreement or evaluating your broader legacy plan, proactive planning today can help preserve family wealth, protect business continuity, and minimize uncertainty for the next generation.

At Heirmark, we work closely with business owners, families, and their trusted advisors to identify planning gaps and develop strategies that reflect their evolving goals. If your Buy/Sell Agreement or succession plan has not been reviewed recently, we welcome the opportunity to help ensure it remains aligned with your vision for the future. We take pride in serving a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you.