Small Businesses Face Threat to Succession Planning due to U.S. Supreme Court Ruling

In the case of Connelly v. U.S., the issue at hand concerns life insurance proceeds and the estate tax. The U.S. Supreme Court ruled in favor of the Court of Appeals, which will make the transfer of a closely held business more challenging after the death of a small business owner. NFIB, along with the U.S. Chamber Litigation Center, filed an amicus brief in the case emphasizing the importance of redemption agreements for Main Street businesses.

Beth Milito, Executive Director of NFIB’s Small Business Legal Center, expressed disappointment in the ruling, stating that the decision allows the IRS to continue taxing small businesses based on an exaggerated assessment of their value following the death of an owner. This uncertainty regarding tax liability creates challenges for small businesses in long-term succession planning, potentially impacting whether a business can be passed down to the next generation or will be forced to close its doors for good.

The central question in the case was whether the proceeds of a life insurance policy held by a closely held company on behalf of a shareholder should be considered an asset of the company when calculating the value of the shareholder’s shares for estate tax purposes. The NFIB Small Business Legal Center works to protect the rights of small business owners in legal proceedings, currently involved in over 40 cases in federal and state courts, including the U.S. Supreme Court.