For many families, a business is the largest asset they will ever pass on. How that business is valued for estate tax purposes can decide whether heirs keep it or are forced to sell. A recent shift in the law has made those valuation questions harder to set aside.
Why Business Valuation Draws IRS Attention
With the federal exemption permanently high, the government has focused enforcement where the numbers are largest and least certain: the value of closely held companies and other hard-to-price assets. A high appraisal can push an estate over the threshold and trigger a 40% tax on the amount above it.
At Estate Planning Pros, we help owners plan for that risk before it turns into a dispute.
The Ruling That Changed the Math
In Connelly v. United States, the Supreme Court held that life insurance a company holds to buy out a deceased owner’s shares counts as a corporate asset, and the obligation to redeem those shares does not offset it.
That can raise a company’s value, and the estate’s tax bill, more than owners expect. The full impact of how Connelly affects estate tax is worth understanding before you rely on your current buy-sell structure.
Fix the Buy-Sell Structure
Many owners fund succession with company-owned life insurance and a redemption agreement, the exact structure the Court examined. Alternatives exist, such as a cross-purchase arrangement that keeps the proceeds out of the company.
Reviewing your buy-sell agreement now is one of the most direct responses to the ruling.
Co-owners should also confirm that business partners have a plan for what happens after a death.
Look Beyond the Business
Valuation risk is not limited to companies. The IRS also scrutinizes assets that are difficult to price. Owners are often surprised when collectibles become serious assets in an estate.
Common valuation flashpoints include:
- Closely held business interests
- Company-owned life insurance
- Art, jewelry, and collectibles
- Real estate with development potential
Plan Before the Value Climbs
Sound structure and timing can reduce exposure. Tools like GRATs can move future appreciation out of your estate.
A clear business succession plan also keeps the transition orderly and limits fights over value.
Protecting What You Built
The value of your business should support your family, not surprise them with a tax bill. An estate tax planning lawyer can review your buy-sell structure, coordinate valuations, and align the plan with current law. If you own a closely held business, contact us to make sure your plan accounts for how it will be valued.