Joe and Mike used to joke that plumbing teaches you two things: patience and problem-solving. After twenty years working for the same plumbing supply company, they realized they knew everything about the business, but likely would be overlooked for significant advancement. The existing owners were not keeping up with newer technology and customers were getting tired of dealing with outdated systems. So they decided to start something of their own. They rented a small warehouse that smelled like cardboard and pipe sealant, and they opened a plumbing supply distributorship with more grit than polish. In the beginning, their “office” was a folding table, a shared phone line, and a handwritten list of contractors they promised to call back that day.
The first year felt like controlled chaos. Joe answered the phones, ran the counter, and somehow still found time to drive a truck when a job site was desperate. Mike loaded orders, tracked down backordered parts, and built relationships one conversation at a time. They learned which customers needed a calm voice and which needed a solution in ten minutes. They also learned that trust spreads faster than advertising when you deliver the right part on time, every time.
Over time, word spread that Joe and Mike were the guys who could fix a supply problem without drama. Contractors started telling other contractors, and remodelers kept their number on speed dial. The warehouse grew from a rented corner to a full operation with labeled inventory racks and a real dispatch routine. They hired their first driver, then a second, and then the kind of operations manager who could keep five moving parts from colliding. A decade later they had 25 employees, several trucks on the road, and strong relationships with local plumbers, builders, and remodelers.
The business was now worth several million dollars, and their personal risk had grown right alongside it. But one piece of paperwork had quietly stayed the same since the early days. When they first formed the company, their attorney drafted a basic buy-sell agreement that said, in plain terms, “If one of you dies, the company will buy the shares.” It also included an old valuation formula that seemed “good enough” at the time, and they bought a modest amount of life insurance to back it up. Then the business grew, the coverage did not, and the agreement sat in a drawer while real life took over.
About a year ago, their longtime family attorney called and asked them to come in. Her tone was familiar: not panic, but certainty that something needed attention. She explained that the U.S. Supreme Court had issued an important decision in Connelly v. United States (decided June 6, 2024). In that case, a closely held corporation received life insurance proceeds intended to fund a redemption, and the Court held that those proceeds were a corporate asset that increased the corporation’s value for estate tax valuation purposes; the corporation’s obligation to redeem shares at fair market value did not automatically offset that increase. Authority note: this is directly from the Supreme Court opinion and syllabus. Supreme Court+1
Their attorney did not claim Connelly “bans” redemption-style plans, and she was careful not to oversimplify. Instead, she gave them the practical takeaway: older, loosely drafted redemption agreements can produce valuation surprises, especially when the plan relies on corporate-owned life insurance and a formula valuation that no longer reflects the business. She also reminded them that federal estate valuation generally focuses on fair market value at death under Treasury regulations, which means sloppy valuation language can become expensive at the worst possible moment. Authority note: the Treasury regulation at 26 CFR 20.2031-1 states that the value of property includible in the gross estate is its fair market value at death (subject to elections like alternate valuation). eCFR+1 She added one more warning flag: buy-sell restrictions do not automatically control tax value, because IRC Section 2703 can disregard certain restrictions unless they meet specific requirements. GovInfo+1
Joe and Mike left that meeting with a clear goal: rebuild the plan as a coordinated system, not a dusty document. They brought in their CPA and an insurance professional, and they agreed to do it all at once so the parts would match. The first step was a current business valuation, documented in a way their spouses and advisors could understand. Their CPA explained that valuation work is commonly performed under professional standards, including the AICPA’s Statement on Standards for Valuation Services, VS Section 100 (SSVS), which describes how AICPA members are expected to approach valuation engagements. Authority note: this comes from the AICPA’s own VS Section 100 overview. AICPA & CIMA+1 They wanted a number that could be defended, not a number that would be argued about.
The second step was funding, and it was humbling. Their existing insurance amounts were simply too small compared to the updated valuation, and the old plan assumed the company could “figure it out” if something happened. Their advisors framed life insurance in plain consumer terms: life insurance pays a death benefit if you die while the policy is in effect, in exchange for premiums paid before death. Authority note: this language is consistent with the NAIC Life Insurance Buyer’s Guide. NAIC+1 They also emphasized that life insurance is regulated at the state level, and consumer guidance is often distributed through state channels using NAIC materials. Authority note: example of NAIC buyer guidance hosted through a state regulator site. appspre.scc.virginia.gov
The third step was structure, and this is where they avoided the “one-size-fits-all” trap. Their original agreement was a straightforward entity-purchase agreement (stock redemption), meaning the company would redeem a departing owner’s shares. That can work, but Connelly highlighted that when the corporation receives life insurance proceeds, those proceeds can increase corporate value for estate valuation, and a fair-market-value redemption obligation does not automatically reduce that value. Authority note: this is the Supreme Court’s holding and reasoning. Supreme Court So instead of locking themselves into a single path forever, they adopted a trustee-directed wait-and-see buy-sell agreement, which allows the parties to choose the most sensible route at the time of the triggering event.
They also added a neutral “quarterback” role to reduce stress when emotions run high. A trusted CPA firm served as the trustee/administrator, responsible for coordinating the valuation update, confirming funding availability, and overseeing the mechanics of the share transfer. The idea was not to replace the attorney or the CPA, but to make sure the plan would actually move forward when someone is grieving or when the business is under pressure. The “wait-and-see” framework gave them options: the company could redeem some shares, the surviving owner could purchase shares directly in a cross-purchase agreement, or they could use a blended approach depending on cash flow and tax considerations. Authority note: major carriers describe cross-purchase vs redemption mechanics in business succession education materials, and the basic distinctions are widely recognized in planning practice. New York Life+1
Next, they expanded the plan beyond death, because real life rarely follows a single script. The revised agreement addressed disability, retirement, and other defined departures, with clear triggers and timelines. Their team emphasized that “disability” is a broad concept in public health, so a contract must define it precisely for ownership transfer purposes. Authority note: the WHO explains disability as arising from the interaction between health conditions and contextual factors, and public health sources break disability into dimensions like impairment, activity limitation, and participation restriction. World Health Organization+2CDC+2 That context helped Joe and Mike understand why a buy-sell agreement must specify how disability is determined, who makes the determination, and when the buyout process begins.
Finally, their attorney rewrote the agreement with tax reality in mind, not just legal formality. She aligned the valuation method with a disciplined update process and made sure the agreement’s restrictions were designed to stand up under IRC Section 2703, which requires that qualifying arrangements be a bona fide business arrangement, not a device to transfer value to family for less than full consideration, and comparable to arm’s-length terms. Authority note: those requirements are stated in the statute text. GovInfo+1 She also ensured the document explained how life insurance proceeds would be handled and how the buyout would be executed, so no one would be guessing in a crisis. If they ever evaluated variable life as part of funding, the insurance professional noted that communications about variable life and variable annuities are subject to FINRA rules, including Rule 2211 and the general communications standards in Rule 2210. Authority note: FINRA Rule 2211 explicitly references Rule 2210 and provides guidelines for communications about variable life and variable annuities. FINRA+1
When they were done, the plan felt different in a way that surprised them. It was not just “a document” anymore, and it was not a product pitch. It was a coordinated succession system: updated valuation, realistic funding, clear triggers, and flexible execution paths under a wait-and-see buy-sell agreement overseen by a neutral administrator. They both felt calmer, not because something dramatic had happened, but because the plan was built to work when something eventually does. That is the quiet value of good planning: it is supposed to feel boring on your best day, so it can perform on your worst day.
Practical note: this example is educational, and owners should work with their attorney, CPA, and licensed insurance professional to design and implement a plan appropriate for their business, state law, and tax situation. Connelly is a Supreme Court decision and is widely relevant, but the best structure depends on facts like entity type, ownership mix, liquidity, and family objectives. Treasury valuation rules and IRC 2703 requirements are technical, and small drafting differences can change outcomes. Using a coordinated team approach is often the difference between a plan that reads well and a plan that works.
A wait-and-see buy-sell agreement is a business succession agreement that keeps multiple purchase options available until a triggering event occurs, such as an owner’s death, disability, or retirement. Instead of forcing the business into only one structure for all time, it allows the parties to decide at the time of the event whether the company will redeem the departing owner’s interest (an entity-purchase agreement (stock redemption)), whether the remaining owner(s) will buy it directly (a cross-purchase agreement), or whether a combination approach is best. This flexibility is valuable because the “right” approach can change based on the company’s cash flow, ownership structure, lender covenants, and tax context at the time the buyout is actually needed. From a federal transfer-tax perspective, valuation generally focuses on fair market value at death under Treasury regulations. eCFR+1 In Connelly v. United States (June 6, 2024), the U.S. Supreme Court held that life insurance proceeds payable to a corporation can increase the corporation’s value for estate tax valuation, and a fair-market-value redemption obligation does not automatically offset that increase. Supreme Court Because valuation and funding interact, many plans coordinate a credible business valuation process, often performed under professional standards such as AICPA VS Section 100 (SSVS), with an insurance funding design that can be reviewed and updated over time. AICPA & CIMA+1
Connelly addressed how to value a deceased owner’s interest for federal estate tax purposes when a closely held corporation receives life insurance proceeds connected to redeeming shares. The Supreme Court held that the life insurance proceeds were a corporate asset that increased the company’s value, and the company’s obligation to redeem shares at fair market value did not automatically offset that increase. The Court’s reasoning emphasized that a fair-market-value redemption does not change shareholders’ economic interests in a way that would cause a hypothetical buyer to discount the shares on account of the redemption obligation. Authority note: this is stated in the Supreme Court opinion and syllabus. Supreme Court+1
Treasury regulations generally provide that the value of property includible in a decedent’s gross estate is its fair market value at the time of death, subject to specific elections such as the alternate valuation method. This matters because closely held business interests do not have a public market price, so valuation depends on facts, appraisal methods, and documentation. A buy-sell agreement can be helpful, but it does not automatically override valuation rules if the agreement is outdated, poorly funded, or structured in a way that produces conflicting valuation signals. Authority note: the estate tax valuation framework is stated in 26 CFR 20.2031-1. eCFR+1
Not automatically, especially when family members are involved or when restrictions look like a device to transfer value for less than full consideration. IRC Section 2703 provides that certain rights and restrictions can be disregarded for transfer-tax valuation unless the arrangement meets specific requirements. Those requirements include that it be a bona fide business arrangement, not a device to transfer property to family for less than full and adequate consideration, and comparable to arm’s-length terms. Authority note: those requirements are stated directly in the statute text. GovInfo+1
Life insurance can create liquidity at the moment it is needed most, which is typically at death or another triggering event, and it can reduce pressure to borrow or sell assets quickly. Consumer-level guidance describes life insurance as paying a death benefit if you die while the policy is in effect, in exchange for premiums paid before death, and that liquidity can be used to address financial needs that continue after death. In buy-sell planning, that same liquidity can be aligned with a documented valuation so the business can purchase an owner’s interest without destabilizing operations. Authority note: this definition and framing is described in the NAIC Life Insurance Buyer’s Guide. NAIC+1
In a cross-purchase plan, the remaining owners typically own policies on each other and use proceeds to buy the departing owner’s interest, while in an entity-purchase plan the company receives proceeds and redeems the shares. The structures differ in who owns the policy, who receives the proceeds, and how the ownership interest transfers, which can affect administration and tax outcomes. Many educational resources describe these differences and how they function as part of succession planning, including major carrier planning materials. Authority note: examples include carrier education pieces describing cross-purchase mechanics and redemption mechanics. New York Life+1
Public health authorities describe disability broadly and emphasize that disability involves more than a single medical label, which is helpful context but not a contractual test. For example, WHO explains disability as resulting from the interaction between health conditions and contextual factors, and public health sources describe disability dimensions such as impairment, activity limitation, and participation restriction. A buy-sell agreement needs a precise, operational definition, including how disability is determined, who makes the determination, and what timing triggers a buyout. Authority note: this context comes from WHO and CDC explanations, and related academic references describing disability as an umbrella concept. World Health Organization+2CDC+2
Variable life insurance is a security product, so communications about it are subject to FINRA’s communications standards. FINRA Rule 2211 specifically addresses communications with the public about variable life insurance and variable annuities and points back to the broader standards in Rule 2210. This matters because descriptions must be balanced, clearly identify the product, and avoid misleading claims, especially when discussing performance, risks, and costs. Authority note: this is described in FINRA Rule 2211 and FINRA’s communications reference materials. FINRA+1