The question
Whether a closely held corporation's contractual obligation to redeem a deceased shareholder's shares at fair market value offsets the value of life-insurance proceeds committed to funding that redemption when calculating the shares' value for federal estate tax purposes.
Connelly v. United States
What the Court decided
The Court affirmed the Eighth Circuit and ruled against Michael Connelly's estate. A corporation's contractual obligation to redeem shares is not necessarily a liability that reduces the corporation's value for federal estate tax purposes. Life-insurance proceeds payable to the corporation are an asset that increases its fair market value, and a fair-market-value redemption obligation does not offset that value because it has no effect on any shareholder's economic interest. Crown was worth $6.86 million at Michael's death, so his 77.18% stake was valued accordingly.
How the justices split
UnanimousThe Court's opinion
Thomas, joined by Roberts, Alito, Sotomayor, Kagan, Gorsuch, Kavanaugh, Barrett, Jackson
The value of a decedent's shares in a closely held corporation must reflect the corporation's fair market value, and life-insurance proceeds payable to the corporation are an asset that increases that value. A contractual obligation to redeem the shares at fair market value does not offset those proceeds because such a redemption has no effect on any shareholder's economic interest, so no hypothetical buyer would treat it as reducing the value of the shares. Crown was worth $6.86 million at Michael's death, and the estate tax measures the shares' worth at the time of death before Crown made the redemption payment.
How we know · 5 sourced claims
The Court held that a corporation's contractual obligation to redeem shares is not necessarily a liability that reduces the corporation's value for federal estate tax purposes.
Source: syllabus, Held
Life-insurance proceeds payable to a corporation are an asset that increases the corporation's fair market value.
Source: syllabus, Held
Crown was worth $6.86 million at Michael's death, consisting of $3 million in life-insurance proceeds plus $3.86 million in other assets and income-generating potential.
Source: syllabus, Held
A fair-market-value redemption has no effect on any shareholder's economic interest, so no hypothetical buyer would treat it as reducing the value of the shares.
Source: syllabus, Held
Justice Thomas delivered the opinion for a unanimous Court.
Source: syllabus, lineup