Actuarial tables (also called life expectancy tables, mortality tables, and life tables) are statistical tools used by companies, scientists, courts, and government agencies to predict the life expectancy of a person by their age, gender, and other factors. The tables most often give life expectancy based by year and gender. For example, the life expectancy for women may be 9.9 years at age 75, 9.5 at age 76, etc.
Should a deceased shareholder’s stock valuation for federal estate tax purposes include company-owned life insurance proceeds used to buy back the shareholder’s stock?
This case asks the Supreme Court to decide whether life insurance proceeds acquired by a corporation to redeem a deceased shareholder’s stock are a corporate asset when calculating the shareholder’s interest in the corporation for federal estate tax purposes. Connelly, the petitioner, argues that life insurance proceeds used to fulfill a corporation’s obligation to redeem a shareholder’s stock should not increase the taxable value of the estate because a closely held corporation’s obligation to redeem stock is a liability that offsets the value of life insurance proceeds. Connelly further contends that the estate tax valuation method used by the Internal Revenue Service (“IRS”), which includes insurance proceeds in the company’s share value, is detrimental to closely held corporations because it forces them to overspend on life insurance and redemption arrangements. The IRS counters that life insurance proceeds, which enhance a company’s equity, should not be offset by stock redemption obligations in share valuation. The IRS also contends that taxing life insurance proceeds aligns with legislative goals to tax a deceased shareholder’s property at its fair market value, emphasizing that the Connelly family’s undervaluation of shares bypasses market value impacts. The outcome of this case will affect estate planning strategies and the effectiveness of life insurance-funded redemption agreements that intend to ensure closely held business’s continuity of ownership.
Whether the proceeds of a life-insurance policy taken out by a closely held corporation on a shareholder in order to facilitate the redemption of the shareholder’s stock should be considered a corporate asset when calculating the value of the shareholder’s shares for purposes of the federal estate tax.
Michael Connelly and Thomas Connelly (“Connelly”), who were brothers, owned all the shares of Crown C corporation (“Crown”). Connelly v. United States at 414. The brothers and Crown entered into a stock purchase agreement to ensure a seamless transfer of ownership in the event of either brother’s death.
Warren Hillman named his wife, Judy Maretta, the beneficiary of his Federal Employees’ Group Life Insurance Act (FEGLIA) in 1996. The two subsequently divorced and Hillman remarried, but never changed the named beneficiary on his plan to his new wife, Jacqueline Hillman. Upon Warren Hillman’s death, Jacqueline Hillman attempted to claim death benefits under this policy, but her claim was denied because she was not the named beneficiary. Maretta received the benefits instead and Jacqueline Hillman commenced a suit against Maretta for the full amount of the death benefits.
Under Virginia state law, when a couple is divorced their beneficiary designations are automatically revoked. However, the FEGLIA states that the beneficiary named on the policy shall receive the death benefits regardless of current marital status. The Supreme Court will now decide whether FEGLIA preempts Virginia’s state law regarding named beneficiaries, which will determine whether Jacqueline Hillman or Judy Maretta receives Warren Hillman’s death benefits. This case involves the proper balance of the federal government’s interest in uniform rules for the distribution of FEGLI benefits and the state of Virginia’s interest in seeing the intended beneficiary, rather than the named beneficiary, receive the death benefits.
VA. CODE ANN. § 20-111.1(A) (2011) provides that a life insurance policy's revocable beneficiary designation naming a then spouse is deemed revoked upon the entry of a Final Decree of Divorce. 5 U.S.C. § 8705(a) provides that the proceeds from a Federal Employees Group Life Insurance (FEGLI) policy should be paid to the beneficiaries properly designated by the employee, and if none, then to the widow of the employee. If VA. CODE ANN. § 20-111.1 (A) is preempted by 5 U.S.C. § 8705(a) or any other federal law, VA. CODE ANN. § 20-111.1(D) (2011), gives the widow (or whoever would otherwise be entitled to the insurance proceeds), after FEGLI insurance proceeds have been distributed to an ex-spouse, a domestic relations equitable remedy against the ex-spouse for the amount of the insurance proceeds received.
The Supreme Court of Virginia, in agreement with the Supreme Court of Alabama, the First, Seventh and Eleventh Circuits of the United States Court of Appeals and several lower federal courts, but in direct conflict with the Indiana Supreme Court, the Supreme Court of Mississippi, the Court of Appeals of North Carolina, the Appellate Court of Illinois, the Missouri Court of Appeals, the Court of Appeals of Texas, the Superior Court of New Jersey, Appellate Division, the Superior Court of Pennsylvania, and the Court of Appeals of Kentucky, held that 5 U.S.C. § 8705(a) preempts a state domestic relations equitable action against the beneficiary of a FEGLI policy after the insurance proceeds of such policy have been paid to such beneficiary in accordance with the statutory order of precedence in 5 U.S.C. § 8705(a).
The question presented is whether 5 U.S.C. § 8705(a), any other provision of the Federal Employees Group Life Insurance Act of 1954 (FEGLIA) or any regulation promulgated thereunder preempts a state domestic relations equitable remedy which creates a cause of action against the recipient of FEGLI insurance proceeds after they have been distributed, like the one contained in VA. CODE ANN. § 20-111.1(D).
Whether any provision of the Federal Employees Group Life Insurance Act of 1954 preempts states from creating an equitable remedy where a third party can recover the amount of the Federal Employees Group Life Insurance benefit from the original beneficiary.
Life expectancy is a calculation of the amount of time a person is expected to live, often using actuarial tables based upon multiple factors like age, health, origin, wealth, or gender. Life expectancy arises in many legal circumstances including life estates, calculating damages for torts, or regulating retirement distributions.
Term life insurance refers to life insurance policies that provide coverage for a certain amount of time and typically only provide a death benefit. A basic term life insurance policy includes the policy owner paying a monthly or yearly premium with the premium increasing as the person ages.
Universal life insurance is a type of life insurance that lasts for the life of the insured and has flexible premiums, death benefits, and cash value.
Variable life insurance is a form of whole life insurance that accumulates cash value on a tax-deferred basis. Variable life insurance operates similarly to a mutual fund because the insured pays premiums that go into a separate investment account owned by the insured. The variable life insurance policy yields a minimum death benefit to the insured like other life insurance policies.
Variable universal life insurance refers to universal life insurance policies where the policy holder chooses how the cash value of the account is invested. Like any universal life insurance, these policies allow flexible premiums and death benefits.
Whole life insurance (also referred to as permanent life insurance) refers to life insurance policies that are meant to last until death and have an investment aspect. As long as the person pays the required premiums, the insurance policy will provide a death benefit when the person dies.
