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U.S. Supreme Court Rules Life Insurance Proceeds Earmarked for a Share Redemption Are Not Offset by the Redemption Obligation for Estate-Tax Purposes by ROBERT S. HORWITZ and LUKE RYAN

In Connelly v. United States, the U.S. Supreme Court examined an estate-tax issue involving how to value life insurance proceeds received by a closely held corporation upon a principal shareholder’s death. Typically, such proceeds are used by the corporation to buy back shares from the deceased shareholder’s estate, thereby keeping the corporation in the family. The parties stipulated that the insurance proceeds were an asset that increased the value of the corporation. The Court had to decide whether the corporation’s contractual obligation to purchase the deceased shareholder’s shares offset the life insurance proceeds.

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