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In a loss for taxpayers in estate tax cases, the US Supreme Court recently ruled that company owned life insurance proceeds that fund redemptions on death must be included in the company’s value, without a corresponding offset for the obligation to make the redemption payment. The result in that case was an increase in the value of the company that was included in the decedent’s estate, and a substantial estate tax underpayment assessment. With the estate tax exemption scheduled to be cut in half at the end of 2025, from about $14mm per person to $7mm, more estates are at risk of paying additional estate tax. At a 40% tax rate, that’s no small check.

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If you have a business and are considering an arrangement to buy-out a deceased partner’s ownership interest, you might consider alternative structures other than a company owned life insurance policy that funds a redemption agreement. For example, individual policies and a cross-purchase agreement, or trust owned policy, might be better suited to your circumstances.

If you have an existing company owned policy and want to avoid the valuation uptick and tax exposure, a review of the policy and the terms surrounding the redemption arrangement is important. Depending on the amount of cash value, surrender charges, type of entity, and other considerations, we might be able to help design a good solution for you.

Close-up of U.S. tax documents, including W‑2 and 1099‑G forms, stacked together.

Blurred close-up of financial documents with rows and columns of printed information.

Is it Time to Review Your Company Owned Life Insurance?

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