The IRS is at it again! Partnerships should take notice.

While the case has drawn some attention by the advisor network, this ruling is worth another look. The 8th Circuit Court of Appeals finding in the Connelly Case was affirmed by the U.S. Supreme Court on June 6, 2024. In this case, the buy-sell liability offset was not recognized by the court and thus the corporately-owned life insurance paid at death significantly increased the value of the deceased’s estate and resulting estate-tax. Although the decision focused exclusively on Stock Redemption Agreements in the 8th Circuit Court jurisdiction, regardless of location, all business owners should take notice and consider a review of their existing buy-sell agreements and funding mechanisms.

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Rob Hunt II

LIC & CLU® | Principal & Chief Executive Officer

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed.

Securities and Investment Advisory: Services offered through M Holdings Securities, Inc., A Registered Broker/Dealer and Investment Advisor, member FINRA/SIPC. Rose Street Advisors is independently owned and operated. Rose Street Advisors is a member firm of M Financial Group. #6772299.1

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Over the years of working alongside a number of family offices, I continue to be impressed by the sincere care demonstrated for the family (or families) they serve. While we provide life insurance reviews, on-going service and marketplace insight on their current portfolios, we also strategize with family offices on how life insurance can support their overall objectives. After many discussions about the complexities and challenges of running a family office, could life insurance possibly be a “Family Office’s best friend”?

Initiating the Conversation

The process of buying life insurance is one focused on the next generation. As a mentor of mine told me early on, “Two types of people buy life insurance - those who care about someone and those who care about something besides themselves." Especially when working with younger generations, any opportunity to discuss the sense of responsibility they should have to future generations and their family legacy is meaningful. A conversation regarding life insurance planning is another occasion for the family to consider who and what they care most about

A Business Model of Service

My experience with family offices has been an atmosphere of high touch and high service. Family offices are intentional about being advocates for their families; their service model intertwines both the personal and professional workings of a family. In order to do that well, there must be wealth to manage and revenue generated so resources are available to support all those important functions. When family trees branch farther and farther out, the level of wealth can be diluted while the service expectation from each increasing family member remains constant. One way to counter that reality is to intentionally plan for ways to mitigate depleting family wealth; revenue must match expectations and obligations. With careful planning to minimize income and estate taxes, wealth spent over multiple generations is naturally replenished by an injection of life insurance.

Forced Savings Plan

Paying premiums can serve as a savings mechanism for those who depend on future trust dollars and prevent current recipients from leaving little behind. This strategy can help family offices and those in a fiduciary role balance the demands of the current generation with the responsibility to look out for the interests of future generations.

An Asset Without Equal

Life insurance is still the only asset that avoids taxation at all levels and continues to be a vehicle used by wealthy families to accomplish explicit wealth transfer objectives. While GST-exempt Dynasty Trusts may hold a majority of family assets, inevitably there will be situations where assets outside the trust are susceptible to future taxation. Life insurance does not recognize income or gains requiring complex annual tax reporting (cash values grow inside the policy free from current taxation). As a prime example, private placement life insurance (PPLI) provides access to alternative investments, while being tax-efficient and eliminating the need to track down another K-1 or further complicate tax returns. Life insurance may not be as warm and friendly as a golden retriever, but for a family office, at least you don’t have to worry about cleaning the carpets. If you have questions or would like to see how the advisors at Rose Street Advisors can help you better serve your clients, please contact us below. We are here to help. Click here to request a policy review!

Rob Hunt II

LIC & CLU® | Principal & Chief Executive Officer

As Principal and CEO, Rob spearheads the vision, drive for growth, and pursuit of excellence at Rose Street Advisors. Rob loves being outdoors with his wife Erin and kids. He has slalom skied for the past 35 years, never missing a season. He also enjoys spending time at the lake and on the golf course. This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed. Securities and Investment Advisory: Services offered through M Holdings Securities, Inc., A Registered Broker/Dealer and Investment Advisor, member FINRA/SIPC. Rose Street Advisors is independently owned and operated. Rose Street Advisors is a member firm of M Financial Group. #6610057.1

Interested in more?

Let's Talk

Do you own a business? Do you want to pass wealth to your business and/or your family? Do you want to ensure that your business and/or wealth passes to multiple generations? While the future is uncertain, it is important to plan. When our clients create estate and succession plans, they are limited by the information at hand at this moment; whether that be their current family and business environment, recently updated IRS guidelines, acceptable planning techniques, or current estate and income taxation regulations. Almost all plans will need to extend over numerous decades and multiple generations. Change is not probable, it is inevitable, and that is why liquidity, and the flexibility it provides, will never go out of style. At Rose Street Advisors, we have the unique opportunity to work alongside our clients and their advisors (attorneys, CPAs, etc.) to safeguard their families and businesses to create a blueprint that meets their planning objectives. As a flexible instrument, life insurance provides unencumbered, tax-efficient liquidity when needed most. Life insurance is used as a tool to provide funds needed to: • Help divide an illiquid asset among children; such as a family business, farm, or cottage when interest and ability to manage the asset is varied, but a desire to be “fair” is of utmost importance. • Create a guaranteed market for an owner’s business interest so that a spouse is not dependent on the future success of a business. It can also provide a surviving business partner tax-free liquidity necessary to acquire the deceased partner’s interest in the company. • Provide funds that can be used to pay a federal estate tax that comes due within 9 months following the passing of an individual with a large estate exceeding the current estate-tax exemption amount. • Compensate a key employee’s family in full when a deferred benefit has been promised to the deceased. • Provide working capital to a business needing to replace a key member of a company who has unexpectedly passed. Are you facing an uncertain future? We all are, and the only way to get ahead of it is to plan. If you would like to speak with us regarding your situation or how best to use life insurance in your planning process, please contact us. We look forward to your call!

Rob Hunt II

LIC & CLU® | Principal & Chief Executive Officer

Interested in more?

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