We want to bring to your attention an important U.S. Supreme Court decision — Connelly v. United States (2024) — that may materially affect physician-owned medical practices and related real estate entities.

What the Decision Means

The Court ruled that when a business receives life-insurance proceeds (often used to buy back a deceased owner’s shares), those insurance proceeds must be included in the business’s valuation for estate tax purposes. This can significantly increase the taxable value of a physician-owner’s interest at death.

Why This Matters for Private Medical Practices 

Most medical practices maintain buy-sell agreements funded with practice-owned life insurance. Under the new ruling, these insurance proceeds — even if used immediately to redeem shares — increase the value of the practice, potentially resulting in:

• Higher estate tax liabilities on the deceased physician’s ownership interest

• Buy-sell agreements that may now be underfunded

• Liquidity strain on families and surviving partners

• Valuation mismatches between the medical practice and related real estate entities

Real Estate Entity Considerations

Many physicians and business owners may also own their medical office building through a separate real estate LLC. Changes in practice valuation can:

• Affect required transfers of real estate interests

• Create unintended ownership shifts

• Impact long-term succession or exit planning

Recommended Next Steps

We encourage practice owners to:

• Review current buy-sell agreements

• Reassess how insurance is owned and funded

• Evaluate whether cross-purchase structures may provide better tax outcomes

• Ensure real estate agreements remain aligned with practice governance

• Consider estate planning strategies to manage increased valuations

Our team is available to help you analyze how this ruling applies to your specific practice structure and ownership arrangements. Please reach out to schedule a planning review.