Valuation Lessons Learned from Connelly vs. United States [PODCAST]

Emmett Mulcahy, Partner and Valuation Services Practice Lead at Redpath and Company, joined Mind the GAAP host, Sean Sullivan, to discuss the impact and potential outcomes of Connelly vs. United States—a Supreme Court case that has the valuation world on edge. 

At issue is how corporate-owned life insurance (designed to fund the redemption of a deceased shareholder’s stock) impacts the fair market value of a company and the value of the decedent’s gross estate. 

So, the questions the Supreme Court will help answer are:

• Will the proceeds of an insurance policy owned by a corporation and payable to the corporation be considered in determining the corporation’s fair market value?
• Is there an off-setting liability that ultimately affects the fair market value of the business? 

The implications are huge considering the potential estate tax liability—and that’s really why this case has risen to this point. And business owners may even need to consider if life insurance owned by the entity is even a smart business strategy—or one rooted in potential controversy. 

LISTEN TO THE PODCAST:

In addition to the Supreme Court’s pending decision, Mulcahy explains how the buy/sell agreement became an issue and a determining factor in the lower courts’ rulings on the business’s value.

Business owners need to carefully consider:

• How their buy/sell agreement is crafted
• The clarity and language in the buy/sell agreement
• Adherence to the agreement

While it may be some time before a final ruling comes down from the SCOTUS, business owners should start having conversations with ALL their advisors, including attorneys, valuation experts, and wealth advisors to help ensure financial decisions and agreements are not made in a vacuum.