IN THIS ISSUE:
www.masource.org
ISSUE
SUMMER 2025
© M&A Source. All Rights Reserved. | The insights and opinions expressed herein are those of the authors and do not represent professional counsel nor an endorsement by M&A Source.
The Bridge
UPDATES & INSIGHTS
FOR THE LOWER MIDDLE MARKET
A QUARTERLY PUBLICATION
OF THE M&A SOURCE
Chair’s Letter
Driving Better
M&A Outcomes
with Advanced
Transaction Tools
Cold Feet at the Finish Line
The Supreme Court
Likely Shook Up
Your Buy-Sell
Agreement
»
»
»
»
NO.10
2 | The Bridge | Summer 2025
Updates + Insights
for the Lower Middle Market
The Bridge | Summer 2025 | 3
Content.
NO.10
ISSUE
SUMMER 2025
The Bridge
A QUARTERLY PUBLICATION
OF THE M&A SOURCE
Reflect on the Spring Conference and Deal
Market and gear up for the second half of
2025.
LETTER FROM THE CHAIR
04
Learn how to stand out with a more
dynamic and interactive CIM.
DRIVING BETTER M&A
OUTCOMES WITH ADVANCED
TRANSACTION TOOLS
08
Discover how M&A Advisors can save a
deal that’s on death’s doorstep.
COLD FEET AT THE FINISH LINE
10
Gain a better understanding of how buy-
sell agreements that use life insurance are
changing.
THE SUPREME COURT LIKELY
SHOOK UP YOUR BUY-SELL
AGREEMENT
14
4 | The Bridge | Summer 2025
Chair’s Letter
Dear M&A Source and Friends,
Big things are happening at M&A Source—and
we’re just getting started.
We are fresh off one of our most successful
Conferences and Deal Markets where we
learned, networked, made deal connections
and had fun! Our attendee ratings where
some of the highest ever and are due to the
great work of our Conference, Deal Market and
Education Committees – kudos and thank you
to all those involved. At mid-year we are also
at an all-time high in membership thanks to
our Communications, Benefits, Marketing and
Membership Committees. Through the power
of these collective efforts our momentum is
strong and we’re making significant strides in our
mission to build the premier LMM deal making
community.
Now, in addition to advisors, we are excited to
have a growing number of investor members
as part of that community. These members
bring valuable insights, connections and deal
readiness, making our association more robust
and prosperous. We’ve increased our investor
membership by 100% since last year and have
welcomed the following firms since January:
• 404 Endeavors
• Brass Ring Capital
• Chenmark
• Corbell Private Capital
• Evanston Partners LLC
• Ice Miller
• Insight Equity
• Juniper Capital Management
• Lead Capital
• Mainshares
• Mangrove Equity Partners
• MFG Partners
• Midwest Growth Partners
• Naviter Wealth
• O2 Investment Partners
• Oceanus Capital Partners
• Plexus Capital
• Sette Capital LLC
• Temple Hall Group
• Tower Arch Capital Partners
• Two Roads Partners
• Weinberg Capital Group
What’s driving our growth? I’d call it focused
intentionality. We’ve honed in on creating true
value for all of our members with programs such
as DEALMATCH, our Investor Spotlights, and our
impressive list of Benefits. Although just newly
released, DEALMATCH has already facilitated
more than 75 deals between our advisor and
investor members. Today more than ever, if
you’re NOT a member of M&A Source you’re truly
leaving a lot of opportunity and money on the
table.
Layer these developments on top of our
industry-leading education and it’s a true recipe
for your success. We continue to keep the
learning needs of all our stakeholders top of
mind and have developed a strong line up of
professional development opportunities from
entry to expert level. So whether you need to
prepare a better CIM or master Capital Stack
Structuring, M&A Source is, well, your source to
develop and hone your skills.
It’s also exciting to see now the number of very
established advisor firms coming to M&A Source.
Kathy Thiel
2025 Chair, M&A Source
The Bridge | Summer 2025 | 5
Our Marketing Committee has done a fantastic job of
proliferating our association’s presence and increasing
our brand awareness. For far too long, we’ve been the
industry’s biggest ‘secret’ and now we’re becoming the
preeminent place for LMM dealmakers.
Change doesn’t happen overnight, but often when
it comes, it often comes fast. For years we’ve been
laying the groundwork for things that now appear to be
happening very quickly. I again want to acknowledge
that this is all possible due to our fantastic Committee
volunteers, and to the Leadership who continue to steer
our direction on the right path. (And here’s my shameless
plug – GET INVOLVED and be an active part of the
momentum! You’ll reap so much more than you give.)
Many of you may be in summer mode, enjoying vacations
and time with family and friends. Cherish that time. When
you’re back in the zone, truly consider where your time and
talents may be best applied in the association. We’ve done
a lot but we’re not done – we’re just getting started.
And, pull out your calendar RIGHT NOW and mark
down November 9-12, 2025 to join us at the beautiful
Arizona Grand Resort & Spa for the Fall Conference & Deal
Market. Being there will be the best way to finish 2025
strong and set yourself up for success in 2026.
With warm regards,
Kathy Thiel
2025 Chair, M&A Source
Change doesn’t happen
overnight, but often when
it comes, it often comes
fast. For years we’ve been
laying the groundwork
for things that now
appear to be happening
very quickly.
6 | The Bridge | Summer 2025
The Bridge | Summer 2025 | 7
The Bridge | Winter 2025 | 7
The Q2 Market Pulse Survey is Open Through July 15th!
Learn more and participate to gain access
to exclusive participant benefits.
GET STARTED
Q1 2025 Highlights
PATH TO OWNERSHIP
Started the Business
Purchased from 3 Party
rd
Inherited
Purchased from Family
Purchased from Employer
60%
23%
8%
5%
4%
‹$500K
$500K-$1M
$1M-$2M
$2M-$5M
$5M-$50M
MARKET SEGMENTS STUDIED
MAIN STREET
LOWER MIDDLE MARKET
‹$500K
$500K-$1M
$1M-$2M
$2M-$5M
$5M-$50M
Seller’s Market Sentiment Q1 2016-2025
SELLER’S MARKET CONFIDENCE
Q1 2016
Q1 2020
Q1 2024
Q1 2018
Q1 2022
Q1 2017
Q1 2021
Q1 2025
Q1 2019
Q1 2023
0%
23%
45%
68%
90%
8 | The Bridge | Summer 2025
Driving Better M&A Outcomes
with Advanced Transaction Tools
OVER MY YEARS AS DIRECTOR OF MORGAN BUSINESS SALES, I’VE HAD THE PRIVILEGE OF SEEING
FIRSTHAND HOW THE CONFIDENTIAL INFORMATION MEMORANDUM—OR CIM—HAS EVOLVED FROM
A SIMPLE, STATIC DOCUMENT INTO A DYNAMIC, INTERACTIVE TOOL THAT TRULY SETS A BUSINESS
APART IN THE COMPETITIVE WORLD OF MERGERS AND ACQUISITIONS. IT’S BEEN FASCINATING
TO WATCH THIS TRANSFORMATION, AND I’VE LEARNED THAT IN TODAY’S FAST-PACED, GLOBAL
MARKET, A GREAT CIM ISN’T JUST ABOUT PRESENTING FACTS AND FIGURES. IT’S ABOUT TELLING
A COMPELLING STORY, BUILDING TRUST, AND MAKING IT EASY FOR BUYERS TO CONNECT WITH
WHAT MAKES YOUR BUSINESS SPECIAL.
Partner Insight | Promotional Content
The following article was submitted by a sponsoring
organization. We thank them for their support of the M&A
Source community.
One of the biggest changes I’ve noticed is how much
more sophisticated buyers have become. They don’t
just want to read about a business—they want to see it
in action, to get a real sense of its culture, its people, and
its operations. That’s why integrating video galleries and
dynamic photo slideshows into a CIM is now essential.
These features allow potential buyers to take a virtual tour
of your facilities, meet your team, and see your products or
services up close. It’s a far more engaging and memorable
experience than flipping through pages of text, and it helps
buyers form a genuine connection with your business
before they even step through the door.
For businesses with multiple locations or significant real
estate assets, live satellite mapping is a real game-changer.
Imagine being able to let buyers explore your sites and
assets in real time, right from the comfort of their own office.
This level of transparency builds confidence and trust, and it
gives buyers a much clearer understanding of what they’re
By Dru Morgan
CIM-PRO
The Bridge | Summer 2025 | 9
investing in. It’s a feature that used to be reserved for the
biggest players, but now, thanks to modern technology, it’s
accessible to businesses of all sizes.
Another area where CIMs have come a long way is in
analytics and user tracking. In the past, sellers and advisors
had little insight into who was viewing their CIM or how
much time they were spending on each section. Now, with
the right platform, you can see exactly who’s accessing
your information, which parts of the CIM are generating the
most interest, and even how long each buyer is spending
on your documents. This kind of insight is invaluable for
tailoring your follow-up and identifying serious buyers early
in the process. It also helps you spot any red flags, such as
unauthorized access or unusual activity, so you can protect
your confidential information.
In today’s global marketplace, it’s more important than ever
to cater to international buyers. That’s why the best CIMs
now offer multi-language support and the ability to display
financials in different currencies. This ensures that every
buyer, no matter where they’re based, can review your
information in a way that feels natural and comfortable to
them. It’s a small touch, but it makes a big difference in
building trust and making your business more accessible to a
wider audience.
Embedding business websites, financial documents, and
lease agreements directly into the CIM is another feature
that’s become increasingly important. It streamlines the due
diligence process and gives buyers everything they need
right at their fingertips. No more searching through email
attachments or separate files—everything is organized,
secure, and easy to access. This not only saves time but also
helps buyers feel more confident in their decision-making.
Of course, confidentiality is always top of mind in M&A. The
best CIMs now offer robust controls that allow sellers to
manage access at every stage. You can lock users in or out
as needed, monitor login attempts, and even set up alerts
for unusual activity. This gives you peace of mind knowing
that your sensitive information is always protected, no matter
who’s viewing it.
When it comes to bringing all these features together
seamlessly, platforms like CIM-PRO really stand out. CIM-
PRO is designed with both sellers and buyers in mind,
offering a user-friendly experience that makes it easy to
create, manage, and track CIMs. The platform’s intuitive
interface means you don’t need to be a tech expert to
get started, and its powerful analytics give you real-time
insights into who’s engaging with your information. Plus,
with robust security features and the ability to embed
videos, maps, documents, and more, CIM-PRO ensures
your CIM is always professional, engaging, and secure.
What I love about CIM-PRO is how it takes the guesswork
out of creating a world-class CIM. Whether you’re a
business owner looking to sell, or an advisor guiding
clients through the process, CIM-PRO gives you the
tools you need to make a great impression and protect
your confidential information every step of the way. It’s a
platform that’s built for the modern M&A landscape, where
buyers expect more and sellers need to stand out.
The future of M&A is digital, dynamic, and data-
driven. Buyers want information at their fingertips, and
sellers need to be able to deliver it in a way that’s both
professional and engaging. Embracing solutions like CIM-
PRO is the best way to ensure your business stands out,
attracts the right buyers, and stays protected throughout
the sale process. It’s not just about keeping up with the
times—it’s about setting yourself apart and making the
most of every opportunity.
In my experience, the businesses that embrace these
modern tools are the ones that achieve the best outcomes.
They’re able to tell their story in a way that resonates with
buyers, build trust and confidence, and ultimately, secure
the best possible deal. And with platforms like CIM-PRO
making it easier than ever to create a world-class CIM,
there’s never been a better time to take your M&A process
to the next level.
Dru Morgan
CIM-PRO
The future of M&A is digital, dynamic, and data-
driven. Buyers want information at their fingertips,
and sellers need to be able to deliver it in a way
that’s both professional and engaging.
10 | The Bridge | Summer 2025
Cold Feet at the Finish Line:
How an M&A Advisor Can Save
a Near-Dead Deal
AS AN M&A ADVISOR, ONE OF THE WORST THINGS THAT CAN HAPPEN TO YOU IS TO DO AN
EXCELLENT JOB FOR A SELLER ON AN ASSIGNMENT AND PRODUCE A GREAT OFFER ON GREAT TERMS
FROM A HIGH-QUALITY BUYER, AND THEN, FOR SOME REASON, THE SELLER DECIDES TO BACK OUT
AT THE LAST MINUTE. THEY MAY WELL HAVE SOME REASON FOR BACKING OUT, BUT MOST LIKELY,
THEY JUST GOT COLD FEET. THE SUCCESS FEE THAT YOU ARE DUE AFTER MONTHS OF HARD WORK
SUDDENLY BEGINS TO DISAPPEAR. PERHAPS YOU HAVE SOME CONTRACTUAL PROTECTION FOR PART
OF IT, BUT MOST LIKELY, YOU DON’T.
By Ron Edmonds
Principium-White Oak
The Bridge | Summer 2025 | 11
This puts an M&A advisor in a difficult position. The
advisor has an ethical responsibility to put their client’s
interests first. That is very hard to do when the fruit of
your labor is suddenly at risk. Objectively evaluating
exactly what is in a client’s best interests may also be a real
challenge.
In 2024, we ran into exactly this situation. Our client was
a detailed planner who had carefully evaluated what his
“number” was – the enterprise value that would meet the
requirements of his detailed financial plan. Before signing
the engagement agreement, he made it clear to us that if
we couldn’t deliver that number, he would not proceed with
the deal.
The engagement went very well and produced multiple
attractive offers, ultimately producing an offer that was in
the neighborhood of twice the client’s “number.” The first
sign of trouble ahead was that negotiating the letter of
intent proved to be challenging. He wanted to negotiate
some things that sellers rarely do. It took a while and raised
some eyebrows, but we got the LOI signed.
Due diligence proceeded smoothly, with few issues
arising, particularly in the quality of earnings and other
due diligence areas. Negotiating the definitive agreement
was challenging for similar reasons to the Letter of Intent
(LOI). It was a fairly excruciating process with intense
negotiations, and several times we thought it might not
happen. As we were finalizing the documents, the client
confided in me that he didn’t know he could do it. He didn’t
have a reason, but he couldn’t bring himself to do it. The
buyer had agreed to almost all his demands, and he liked
the buyer, but he said he couldn’t do it. He said he might be
able to do it in a couple of years.
I was shocked at this development. In my experience, if a
client gets cold feet at this point, a good night’s sleep can
be beneficial. Not this time. I doubt he got a good night’s
sleep for the next month.
In addition to the fees at risk, I was worried about my
reputation. The buyer had probably spent $300,000 or
more on legal fees and due diligence. They were not going
to be happy. They are an essential buyer in our niche, and
I didn’t want to make an enemy of them. I also knew that,
notwithstanding nondisclosure agreements, this sort of
thing gets around.
We immediately began to try to help the seller objectively
address the situation. We talked for hours, but I also put
a lot of my thoughts to him in the form of a letter (several
letters actually). I put them in writing so that he could
re-read and reflect on the issues I was raising. One of
the most important considerations is that he couldn’t
realistically expect to receive the same offer if he waited
another couple of years. Candidly, one of the main reasons
that I wrote letters was that I hoped that he would print
them out at home, and they would be there for him to
review with his wife.
Selling a business is often the culmination of a lifetime of
hard work, dedication, and personal sacrifice. It's often
the most challenging decision the owner will ever make,
both financially and emotionally. So, it's not uncommon for
business owners, even when a deal is ready to close, to
experience a sudden surge of "second thoughts", "seller's
remorse," or "cold feet." This emotional phenomenon, if not
expertly managed, can derail months of negotiations and
significant financial opportunity. This is precisely where a
skilled M&A advisor demonstrates their actual value.
When a business owner is close to closing a deal and
becomes hesitant to proceed, an M&A advisor can step in
as a critical, objective guide, providing far more than just
transaction expertise.
1. Listening and Re-Framing Specific Concerns
For many owners, their business is a large part of how they
define themselves – their identity, their legacy, their daily
routine. The thought of walking away can be extremely
unsettling. An M&A advisor should understand the deep
emotional connection that an owner has to their business.
• Active Listening and Empathy: The advisor provides
a safe space for the owner to articulate their anxieties,
fears, and regrets. They listen without judgment,
validating the complex emotions involved in such a
significant life transition. This empathy can be crucial
in helping the owner process their feelings and gain
clarity.
12 | The Bridge | Summer 2025
• Reconnecting with Initial Motivations: Often, cold
feet stem from losing sight of the original reasons for
selling. The advisor can help the owner revisit their
initial objectives – whether it was retirement, pursuing
new ventures, financial security, or ensuring the
business's long-term growth under new leadership.
Reminding them of these core motivations can restore
their resolve to complete the transaction.
• Addressing Underlying Concerns: Is it fear of the
unknown? Concerns about how employees will be
handled? Worries about the buyer’s overall strategy for
transitioning the business. An advisor can listen and
ask questions to help uncover what is causing the cold
feet, helping identify potential solutions.
2. Addressing Perceived Issues and Problem Solving
Once the emotional landscape is understood, the M&A
advisor can shift to practical, strategic interventions.
• Reevaluating the Deal: Sometimes, second thoughts
arise because a specific element of the deal no
longer feels right. An advisor can analyze the current
offer against market benchmarks and the owner's
evolving priorities. They can identify potential areas for
renegotiation that might alleviate the owner's concerns
without jeopardizing the entire deal. This could involve
adjustments to the purchase price, payment terms,
transition issues, or even guarantees for employee
retention.
• Proposing Solutions: If the owner desires to maintain
some connection or influence, an advisor can explore
alternative deal structures to achieve this goal. This
might include:
- Partial Sale: Selling a majority stake while retaining
a minority interest, allowing the owner to benefit
from future growth and potentially a "second bite
of the apple."
- Earn-outs: Tying a portion of the purchase price to
the business's future performance, giving the seller
a vested interest in its continued success.
- Consulting Agreements: Formalizing a role for the
seller post-acquisition, providing income and a
structured transition away from daily operations.
• Communicating with the Buyer: Approaching a
buyer about a seller’s cold feet can be incredibly
delicate. The M&A advisor acts as an intermediary,
communicating the seller's concerns professionally
and strategically, without appearing indecisive or
manipulative. They can frame the seller's problems
in a way that resonates with the buyer's objectives,
seeking win-win solutions.
3. Providing an Objective Evaluation
Business owners are often deeply entrenched in their
operations, making it difficult to maintain objectivity. An
M&A advisor offers a crucial external perspective.
• Objective Analysis of the Market: The advisor can
provide data on current market conditions, recent
comparable transactions, and the buyer landscape.
This objective information reinforces that the current
offer is fair and reflective of the market, or identifies
areas where the deal might be improved.
• Highlighting the Issues with Backing Out: While
acknowledging the owner's feelings and concerns,
the advisor can also provide a realistic assessment
of the financial and other implications of walking
away from a near-closed deal. This includes potential
legal fees, wasted time, damaged goodwill with the
buyer, and the challenge of restarting a sale process
with other buyers after having walked away from the
original deal.
• Evaluating the Pros and Cons: The advisor can guide
the owner through a systematic evaluation of "what if
I don't sell?" versus "what if I do sell?" This structured
thinking helps the owner weigh the pros and cons
logically, rather than being overwhelmed by emotion.
In essence, an M&A advisor changes from a deal
intermediary into a confidante and strategic partner
when a business owner faces cold feet. By navigating the
emotional complexities, exploring flexible solutions, and
providing objective analysis, the advisor can significantly
increase the likelihood of successfully closing the deal,
ensuring the owner achieves their long-term goals while
minimizing the risk of regret. For a waffling business
owner, an M&A advisor can be the steady hand that
guides them across the finish line.
The Bridge | Summer 2025 | 13
In my example from last year, the deal seemed to teeter
for a few days, and then it seemed to be entirely off. We
were resigned to the idea that the transaction would not
close. We spoke with the client every week or so, checking
in on his thoughts, answering his questions, and letting
him know that we still thought it was possible to complete
the deal, but that time was running short. We increasingly
believed that the agreement would never close, but we
stayed in touch. He apologized profusely for putting us in
this situation.
After about 30 days, he called the jilted buyer and stated
that he was ready to proceed under the agreed-upon
terms. The buyer, who had experience dealing with sellers
who had second thoughts before, readily agreed to close
the deal, and they completed it in about ten days. If it
had gone another week, I doubt the deal would ever have
happened.
Today, that client remains a good friend and has already
referred several prospective clients. He is pleased with
how the transition went, stating that the buyer had
fulfilled substantially every promise they had made. He
jokingly refers to us as his M&A advisor and psychologist.
Ron Edmonds
Principium-White Oak
When a business owner is close to closing a deal
and becomes hesitant to proceed, an M&A advisor
can step in as a critical, objective guide, providing
far more than just transaction expertise.
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14 | The Bridge | Summer 2025
The Supreme Court Likely
Shook Up Your Buy-Sell Agreement
The Bridge | Summer 2025 | 15
Does your company have a buy-sell agreement that uses
life insurance to redeem your shares if you die?
If so, a new groundbreaking decision by the U.S. Supreme
Court could have an impact on you (or your heirs, if you are
the one who dies).
• It’s possible, because of the Supreme Court’s decision,
that the life insurance proceeds couldcause an
increase in your estate tax.
• Depending on how your buy-sell agreement values
the company, the Supreme Court’s treatmentof life
insurance proceeds could cause a valuation result
different from what you expect.
• The Supreme Court decision may require you and your
fellow shareholders to rethink your buy-sell agreement.
Okay, the Supreme Court made this ruling in the Connelly
case. Let’s find out how Connelly possibly upendedyour
corporate redemption buy-sell agreement and what you
can do about it.
What Happened
The Connelly brothers, Thomas and Michael, owned all the
stock in Crown C Supply, their building supplybusiness.
They wanted to ensure that the business would continue to
operate smoothly without disruption if somethinghappened
to either brother.
The brothers planned for the risk of either of them dying by
having their corporation create and fund a stockredemption
agreement. Crown purchased life insurance on each
shareholder’s life, and the proceeds were tobe used to
redeem the deceased shareholder’s shares.1
Michael died in 2013.
The company bought Michael’s shares using $3 million of
the life insurance proceeds per the redemptionagreement.
Michael’s estate filed a federal tax return listing the value
of his shares at $3 million—the value proclaimed bythe
redemption agreement.
Hello, IRS
Unfortunately for the estate, the IRS disagreed. It said that
at the time of death, the company was worth $6.86 million
(the $3.86 million enterprise value plus the $3 million life
insurance value).
In 2013, when Michael died, the estate tax exemption was
$5.25 million per individual. The IRS change in thevaluation
of the business, just one of the estate’s assets, caused
Michael’s estate to pay more in estate taxes.
The estate paid the tax. Then Thomas, the surviving
brother and estate executor, sued for a refund in
U.S.district court.
It didn’t do much good, because the court agreed with the
IRS and held that the company’s value hadincreased due to
the life insurance proceeds. Per the court and the IRS, the
required redemption did notreduce the value of the shares
for estate tax purposes.2
However, Thomas was not about to give up. He took the
case to the U.S. Court of Appeals for the EighthCircuit,
where he again lost.3 Thomas then took the case to the
U.S. Supreme Court.
On June 6, 2024, the Supreme Court issued a unanimous
opinion in agreement with the IRS, the district court,and the
appellate court.4
The Supreme Court’s decision is now the law of the land—
at least until Congress changes the rules. Now,because of
Connelly, a buy-sell redemption agreement liability can no
longer offset the life insurance proceedson your company’s
balance sheet for estate tax purposes.
After Connelly, life insurance money is considered an asset
of the company. This increases the value of thedeceased
person’s shares before they are bought back. As a result,
the redemption cost is higher, and moreestate tax could be
due.5
16 | The Bridge | Summer 2025
If you are an owner
involved in a business
agreement that uses
life insurance to
fund a redemption of
ownership when one
owner dies, it’s time
to spend some time
with your estate tax
advisors to make sure
what happens at death
is what you expect to
happen.
What to Do About It
First, you should review the structure and terms of your
buyout arrangement.
If your buy-sell agreement uses company-owned life
insurance, the Supreme Court decision affects you.
If the value of your estate is safely under the federal estate
tax threshold (currently, the exemption is $13.61 million6),
you may want to leave the insurance-funded redemption
agreement in place.
Even though life insurance may add to your company’s
value, no federal estate tax would be due if you areunder
the exemption limit. But some states have lower limits, and
you could still owe state taxes.
Note. The Tax Cuts and Jobs Act increase in the federal
estate tax exemption expires on December 31, 2025.Thus,
beginning in 2026, the tax code, as currently written, will
cut the estate tax exemption in half.
An Alternative
You might want to change your arrangement to a “cross-
purchase” agreement. Here, each owner buysinsurance
on the other owners and uses the proceeds to purchase
the shares of the deceased. With this typeof structure, the
value of the insurance does not affect the company value,
as it did in Connelly.
With a cross-purchase agreement funded with life
insurance,
• you receive the life insurance monies free of federal
income tax,
• you use the life insurance money to buy the shares of
the deceased, and
• your stock basis in the company increases by the price
you paid for newly acquired shares.
Changing an existing redemption agreement may prove too
difficult. It’s certainly tricky. And you definitely needgood life
insurance and estate planning advice to make it happen.
If you are concerned that not all the owners will pay the
premiums to keep the insurance in force or that thenumber
of owners is too numerous to monitor effectively, you might
consider a cross-purchase trust or aninsurance LLC. The
advantage here is that rather than having each shareholder
own policies on all the otherowners, there’s only one
insurance policy per owner.
Takeaways
The Supreme Court’s Connelly decision means life
insurance money paid to the company to redeem theshares
of the deceased shareholder increases the company’s value
for estate tax purposes.
If you are an owner involved in a business agreement that
uses life insurance to fund a redemption ofownership when
one owner dies, it’s time to spend some time with your
estate tax advisors to make sure whathappens at death is
what you expect to happen.
After Connelly, your redemption buy-sell may be the wrong
vehicle. It’s possible that a cross-purchaseagreement is a
better alternative for you.
1 For more details on a redemption agreement and the alternatives, see
Your Co-owned Business Probably Needs a Buy-Sell Agreement. Before
Connelly,companies treated the redemption amount they were required
to pay as a liability, which reduced the value of the business when the
company redeemed thestock. Estate of Blount v Commissioner, 96 AFTR
2d 2005-6795 provided this guidance.
2 Thomas A. Connelly v U.S., 128 AFTR 2d 2021-5955.
3 Thomas A. Connelly v U.S., 131 AFTR 2d 2023-1902 (CA8), 06/02/2023.
4 Thomas A. Connelly v U.S., 133 AFTR 2d 2024-1680 (S Ct, 6/6/2024).
5 Reg. Section 20.2031-2(f)(2) requires non-operating assets such as
life insurance, when they are not included in the fair market value of the
business, tobe added to the value of the entity.
6 Estate Tax, Filing Threshold for Year of Death.
The Bridge | Summer 2025 | 17
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