Shoppers With LLCs Want a Enterprise Continuity Plan Examine

The Connelly Ruling

Nonetheless, because the Connelly case illustrates, the IRS’s therapy of life insurance coverage proceeds can have vital tax implications.

The Supreme Court docket’s ruling in Connelly affirmed that life insurance coverage proceeds, when used to fund a redemption obligation, don’t scale back the worth of the enterprise for property tax functions.

For LLC house owners, because of this the proceeds from a life insurance coverage coverage might improve the taxable worth of the enterprise, probably resulting in the next property tax legal responsibility.

To safeguard a shopper’s LLC from these sudden tax penalties, work carefully with a tax skilled who can assist the shopper use these finest practices:

Overview and replace buy-sell agreements: Be sure that the shopper’s buy-sell agreements are up-to-date and replicate the present authorized panorama, together with the implications of the Connelly ruling. Enterprise house owners ought to be reviewing these agreements now within the mild of Connelly and, sooner or later, each three to 5 years.

Seek the advice of with advisors: A enterprise proprietor shopper ought to work carefully with authorized and tax advisors to know how the IRS could deal with life insurance coverage proceeds throughout the shopper’s LLC construction. You, the tax advisors and the shopper ought to work collectively to develop methods to mitigate potential property tax liabilities.

Plan for liquidity: A enterprise proprietor shopper ought to be certain that the LLC has sufficient liquidity to cowl potential tax liabilities with out disrupting enterprise operations. This may increasingly contain setting apart extra funds or exploring choices for deferring property taxes.

The Connelly determination serves as a reminder of the complexities concerned in insurance coverage planning inside an LLC.

Your corporation proprietor shoppers are liable for guaranteeing their planning methods not solely shield their companies but additionally reduce the chance of unintended tax penalties.

By taking a proactive method and repeatedly reviewing insurance coverage preparations, these shoppers house owners can safeguard their LLCs’ future and supply peace of thoughts for all stakeholders.

The U.S. Supreme Court docket constructing in Washington, D.C. Credit score: Bloomberg

Jack Elder is senior vp of superior markets at CBS Brokerage.