As we observe Life Insurance Awareness Month this September, it's crucial to highlight the significance of Buy/Sell Agreements funded with life insurance for business owners. Before we delve into a recent Supreme Court ruling that has brought renewed attention to this topic, let's explore why these agreements are fundamental to sound business planning.
A Buy/Sell Agreement is a legally binding contract that predetermines what happens to a business owner's share of the company in the event of their death, disability, retirement, or other triggering events. When funded with life insurance, these agreements become powerful tools for business continuity and protection. Here's why they're so important:
Now that we understand the crucial role of Buy/Sell Agreements funded with life insurance, let's examine a recent Supreme Court ruling that underscores the importance of structuring these agreements carefully.
On June 6, 2024, the Supreme Court delivered a unanimous decision in the case of Connelly v. United States. This ruling has sent shockwaves through the business and estate planning communities, highlighting the urgent need for careful consideration of Buy/Sell Agreements.
The case involved two brothers, Michael and Thomas Connelly, who owned a small building supply company in Missouri. They had set up a wait-and-see buy/sell arrangement to keep their multi-generational business in the family in the event of an untimely death.
Unfortunately, when Michael died before retirement:
This case serves as a stark reminder of the complexities surrounding Buy/Sell Agreements and their potential tax implications. It underscores several crucial points:
The Connelly v. United States ruling creates both an opportunity and an obligation for business owners:
As we reflect on the importance of life insurance this month, let the Connelly case serve as a catalyst for action. Whether you're reviewing an existing agreement or implementing a new one, seeking professional guidance is crucial. The complexities highlighted by this Supreme Court ruling emphasize the need for expert advice in navigating the intersection of business planning, estate planning, and tax law.
Take this opportunity to contact your current business insurance agent to conduct a review and get help to properly structure and fund your Buy/Sell Agreements. It's not just about protecting your business—it's about securing your legacy and ensuring your hard work continues to benefit your families for generations to come.
When was the last time you had a professional review your Buy/Sell Agreement? Drop a comment below - you might be surprised how many business owners are in the same boat. Contact our team today to schedule a review!
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About the Author
Tyler Bartosh (Connect with me on LinkedIn)
A third-generation insurance agency owner and agent since 2007, Tyler Bartosh is the consummate “insurance geek,” using his passion for business, knowledge of insurance, and advocacy for clients to help serve as the expert buyer of insurance. He helps businesses implement risk management strategies that save both time and money, so those resources can be put towards other initiatives in your company.
Away from his career in insurance, he enjoys spending time with his family & friends, volunteering throughout the community, golf, fishing, snowboarding, hiking and virtually anything outdoors and traveling to see live music. Tyler has a wife Emily (who is also an underwriter in the insurance industry), their dog Lucy and a baby girl, Sophie Constance.
About Top O' Michigan Insurance Solutions:
At Top O’ Michigan Insurance Solutions, we pride ourselves on using our skills to provide clients with competitive pricing, stability and understanding, and peace of mind. With seven locations throughout Michigan and 24/7 client access, our team is your 'expert buyer' of insurance for home, auto, farm, boat, motorcycle, business owners, workers compensation, bonds, life and health, employee benefits and more.
We will provide unparalleled and caring service to our clients through our knowledgeable staff and give back to our employees, agency, industry and our communities. Part of our mission is to give back to the Michigan communities we serve. This is something we take action on through We Care and you can learn more about our community outreach at TOMIA247.com/WeCare.
Disclaimer: This Blog/Web Site does not provide insurance or legal advice. This site is for educational purposes only as well as to provide you with general information and a general understanding of insurance, not to provide specific legal advice or specific contract advice. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute a client relationship.
The information on this Blog/Web Site is not intended to be a substitute for professional insurance or legal advice. Always seek the advice of a licensed agent in your state pertaining to insurance and legal issues.
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