The recent Connelly and Huffman cases spotlighted critical tax and structural traps for buy-sell agreements—especially when funded by life insurance. Below is a practitioner-friendly checklist to help avoid missteps.
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Do’s
1. Do distinguish related vs. unrelated parties.
With unrelated owners, negotiated buyouts are more likely to be respected.
With related parties (e.g., parent–child), courts scrutinize whether the deal hides a disguised bequest.
2. Do respect agreements during life.
Update valuations and apply terms consistently—not just at death.
Failure to honor agreements during life undermines enforceability later.
3. Do review regulatory requirements.
Reg. § 20.2031-2(h): Agreement must be a bona fide business arrangement and not a device to transfer wealth below FMV.
IRC § 2703: Adds a comparability test when family members hold 50%+ collectively. Terms must reflect arm’s-length practices.
4. Do use contemporaneous evidence.
Keep drafts, appraisals, valuation reports, and negotiation records.
This may create a defensible file if challenged by the IRS.
5. Do consider cross-purchase agreements.
Life insurance proceeds are paid directly to surviving owners—not to the company—avoiding corporate value inflation under Connelly.
Cross-purchase agreements also provide a step-up in basis to the purchasers.
6. Do explore Life Insurance LLCs.
Centralize policy ownership to ease administration and avoid transfer-for-value problems.
Use capital accounts to track contributions and benefits among owners.
7. Do consult appraisers strategically.
Use industry multiples or other appropriate measurements when available.
Document how values were set—even if no full appraisal is done.
8. Do review tax treatment of premium payments.
For S corps: beware of disproportionate distributions.
For C corps: fund through deductible compensation rather than nondeductible dividends.
For S corps and partnerships: consider fairness issues in allocating between distributions and compensation to those owners paying premiums
9. Do anticipate creditor and operational concerns.
Company-owned insurance may trigger loan covenant issues.
Cross-purchase avoids corporate creditor risk but raises shareholder creditor exposure.
10. Do weigh practicality vs. perfection.
Absolute protection from IRS challenge is impossible.
Aim to reduce risk in a cost-effective way appropriate to the client’s size and goals.
Don’ts
1. Don’t assume life insurance is an “operating” asset.
Connelly clarified that redemption-funded life insurance generally increases corporate value.
Loss of key person may decrease company value and be offset partially or wholly by death benefits
2. Don’t rely on outdated valuation formulas.
Book value formulas may have worked decades ago but fail if they no longer reflect reality (True case).
3. Don’t let controlling owners change terms unilaterally.
Courts disregard agreements if majority owners can reset pricing without checks.
4. Don’t forget the comparability test under §2703.
Family businesses must show their terms resemble what unrelated parties would agree to.
Isolated comparables may work, but vague references or missing documents (Huffman) won’t.
5. Don’t underestimate litigation risk.
Even well-drafted agreements can be second-guessed.
Be realistic about “settlement value” if disputes arise.
In the high-stress world of law, anger is inevitable, but unmanaged emotions can undermine professionalism and well-being. Mindfulness practices offer powerful strategies to help legal professionals recognize, manage, and transform anger—clarifying values, enforcing boundaries, and navigating high-pressure situations with calm, clarity, and ethical integrity. The following excerpt is shared from the blog, Brilliant Legal Mind, by Claire E. Parsons of Bricker Graydon.
I was asked to talk to a law school class this week about anger management in the legal profession. I’m not stranger to anger. As a litigator, it is something that comes up in my law practice frequently. As a wife and mother, I’d be lying if I pretended anger didn’t arise at home too.
Mindfulness practices and training have shifted my perspective on anger. They have improved it for the better. These practices have given me essential tools for managing anger at home and work. Here are some thoughts on anger for lawyers and some simple steps you can take to manage it better.
Anger is not all bad.
Anger is a volatile emotion and all of us know that it can lead to damaging, if not disastrous, conduct. But does that mean it is bad in itself?
From a mindfulness perspective, the answer is no. To the contrary, when viewed through that lens, emotions don’t have moral value. Instead, mindfulness calls on us to observe things, including our emotions, without judgment.
1. There can be good sides to anger.
One thing we may observe if we can look at anger nonjudgmentally is that it serves a useful purpose in our lives. Anger can help us clarify what matters, motivate us to act when needed, and enforce boundaries.
One reason we are right to distrust anger is that it is an exceptionally hard emotion to control. That is in part because of the energy it inspires. This energy, though, is exactly why anger is useful. It can force us to pay attention to things we had been ignoring or overlooking. It can highlight our values and standards even when we may find it more convenient to sweep them under the rug.
Anger can also offer a protective force for some of our more vulnerable emotions. When you watch anger long enough, you may find sadness, fear, or overwhelm lurking below the surface. Some of us may be primed to reject or judge these soft emotions, so anger has the potential to lead us to more wisdom about all of our emotions.
2. Most of us have judgments about anger.
Despite these potentially good aspects, most lawyers and people may have judgments about anger. In many cases, these judgments have been informed by our culture, families, religions, and professions. Some of us may have been validated for our anger, while some may have received messages implying that anger is off limits. Most of us are bound to have experienced a mix of these messages, which can add to the confusion surrounding the emotion.
In this way, an important step in understanding anger is to explore our own judgments about it. A complete analysis of this will also consider the cultural and developmental messages we received about anger. This might include whether we feel entitled to experience anger, how and whether anger should be expressed, and whether anger has any proper purposes.
What is anger? Seriously. What is it?
Because there are so many judgments about anger, it is important to ask what it really is. Even if it sounds like one, this is not a trick question or a philosophical one. With this point, I am prompting you to consider as directly as possible what anger is. When anger arises, what exactly do you experience?
Understanding anger clearly and directly is a fundamental mindfulness practice. When you know what anger is, you can learn how to manage it better.
In general, you are likely to experience some combination of (a) thoughts; and (b) feelings or sensations in the body. If you watch angry thoughts that arise, you are likely to notice a pattern. They may include some form of judgment or reaction and they often relate to some kind of boundary or rules violation or an unmet need.
The physical sensations of anger may vary for each of us, but what often arises is a surge of energy. Heat, power, and intensity are some of the most common markers of anger, as illustrated by artists and poets over the course of human history. In general, this energy motivates action but as we know the action is often not measured or thoughtful.
CLICK HERE to read the full article on Claire E. Parsons’ blog, Brilliant Legal Mind.
If you’d like to hear more from Claire E. Parsons, join ALI CLE for our upcoming program, Managing Anger: Mindfulness Practices for Lawyers, via live webcast, on September 25, 2025! To learn more about this program and to register for the live webcast, click here.
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A Statement of Work (SOW) is one of the most critical, yet often underestimated, documents in any professional services contract. While the master agreement—such as a Master Services Agreement (MSA) or Professional Services Agreement (PSA)—establishes the overarching legal framework, it is the SOW that sets out the operational roadmap. It specifies exactly what will be delivered, how and when it will be delivered, and at what cost. When drafted well, the SOW protects both parties, eliminates ambiguity, and reduces the risk of disputes or cost overruns. When drafted poorly, it can undermine the protections negotiated in the master agreement, create confusion, and lead to costly litigation.
The SOW’s Scope and Role in the Contract
An SOW should define the “what” of the engagement. It outlines the services, deliverables, milestones, acceptance criteria, payment terms, and other operational details that govern performance. Ideally, it contains only business terms, leaving legal terms to the master agreement—unless the circumstances demand otherwise, such as in a one-off project requiring unique security protocols or intellectual property provisions. Precision matters. Courts have consistently held that a contractor is only responsible for delivering what is expressly set forth in the SOW; if it is not written down, it will not be delivered.
Why Poorly Drafted SOWs Fail
Despite its importance, the SOW is one of the most frequent sources of project failure. Poorly drafted SOWs can result from over-reliance on vendor proposals, leaving key terms undefined, allowing lengthy lists of vendor “assumptions” to shift risk to the customer, including terms that conflict with the master agreement, or deferring the drafting of essential schedules, specifications, or acceptance criteria. Each of these missteps erodes clarity, weakens the customer’s negotiating leverage, and increases the likelihood of disputes.
A Structured Approach to Drafting
Experienced practitioners recommend a systematic approach to SOW drafting. The process begins with ensuring the document is truly an SOW and not simply a repurposed sales proposal. Key terms should be defined in a manner consistent with the master agreement, avoiding any language that could create internal conflicts. The level of detail must be sufficient for a neutral third party—such as a judge or arbitrator with no prior knowledge of the deal—to understand the intended outcomes and obligations. Assumptions should be treated carefully; rather than allowing broad disclaimers, they should be converted into explicit requirements that assign responsibilities clearly. Proactive project management should be built into the SOW through schedules, reporting structures, and escalation procedures. Fees should be tied to objective milestones, with limits on reimbursable expenses and rate increases. Finally, change orders should be used sparingly; if they become the primary tool for managing the project, it often signals that the initial SOW was inadequate.
In the olden days, the umpire didn’t have to take any courses in mind reading. The pitcher told you he was going to throw at you.
Leo Durocher, baseball player, manager, coach, 1905-91
Theory of Mind
Theory of mind is a construct about how we see others and interpret social cues based on context, behavior, substantive content, tone, body language and facial composition. Theory of mind attempts to explain the human capacity to interpret the mental states of others. Some researchers refer to it as mind-reading. By adolescence, our brains and cultural awareness have taught us how to engage with others with the knowledge that others’ mental states are different from what we, ourselves, perceive, process and experience. This encompasses beliefs, thoughts, desires, hopes, emotions, intentions, and expectations of reactions and conduct. Although the brain is observable and mapped by neuroscientists, the mind and its thoughts are unobservable.
Theory of mind is based on directly observing the conduct and demeanor of others, including what they say, how they say it, their expressions, body language, movement or dress. It may include experience or expectations from prior interactions or connections with them, including how they self-identify or affiliate with groups that share common values or goals. The goal is to understand motivations and intentions, to respond appropriately and to predict or explain conduct.
People communicate by more than the content of their language. Aspects of facial expressions, tone, movement, physical closeness and context all form what is referred to by researchers as social cues. These are the ways in which we communicate without using words. Research estimates that over 60% of understanding in conversation comes from social cues. See, G.N. Foley and J.P. Gentile, “Nonverbal communication in psychotherapy,” 7 Psychiatry (Edgmont) No. 7, (6): 38, (2010).
The six basic emotions — anger, disgust, fear, happiness, sadness and surprise — are conveyed by facial expressions. People usually focus on the eyes and mouth during conversation. See generally, Robert A. Creo, “The Effective Lawyer: Navigating Emotions — Emotional Intelligence Competency,” Pa. Lawyer (July/August 2018).
Our physical proximity to others is also an important social cue. This was coined “proxemics” in 1966 by anthropologist Edward Hall, whose research indicated that in American culture there are four proxemic zones. These relate to the level of comfort or intimacy between people:
Intimate (18 inches or less): Parents and children, lovers, spouses and partners
Personal (18 inches to 4 feet): Close friends
Social and consultative spaces (4 feet to 12 feet): Friends, co-workers, routine business or social interactions with acquaintances and strangers
Public (12 feet or more): Strangers, impersonal, relatively anonymous social situations
Proxemic norms vary greatly among cultures.
Social cues are dependent on culture, context and individual personality. There are medical disorders that may limit the ability to interpret common social cues. These may include attention deficit hyperactivity disorder (ADHD) and other diagnosis along the autism or other cognitive disorder spectrums. See, Heather Jones, “Types of Social Cues,” (Dec. 20, 2021, https://www.verywellhealth.com/social-cues-5204407).
There is no surefire method to discern truth from lies in oral statements or testimony. A bedrock principle of the legal system is the concept of determining the credibility of witnesses, which is within the sole purview of the trier of fact and is not subject to reversal except under the rarest of circumstances. The term of art is “demeanor of the witnesses” in findings of fact and credibility, which will be explored in future columns on honesty, misrepresentations and omissions by lawyers and clients. The context to be explored is in a simple contest of “he said, she said” without corroborating direct or circumstantial evidence and how good people are at interpreting the array of “social cues’ to discern accurately what happened. I do not like to frame it as truth versus lies because there are many statements and beliefs provided in good faith that are inaccurate. An assertion does not have to be an intentional lie to be false. People genuinely misremember what was said or done, especially in startling or panicked situations. People are not perfect historians and recollection can be impacted by emotions, values or the stakes at hand.
The short “answer” is that people vary in their ability to accurately label oral statements as truth or lies. There are no universal tells. Failure to look someone in the eyes may or may not be indicative of truthfulness. Some of the best liars are artists of deception who can make sincere eye contact, turning others into true believers with their uttered falsehoods. There is a wide range in the innate and learned ability to interpret social cues and the accompanying language for accuracy.
Paul Ekman has for decades studied deception, body language, facial expressions and interpreting emotions. His research found that people can make over 10,000 facial expressions, with about 3,000 relevant to emotion. He and his colleague Maureen O’Sullivan conducted a massive, multiyear survey of over 20,000 people to learn more about how well people could identify truth from falsity by interpreting inconsistencies in emotion, body language and the spoken word. The test benchmark was an 80% threshold — those who could be correct more than 80% of the time were deemed to be “Truth Wizards,” besting the performance of 50% which would occur randomly over a large number of trials. Only 50 people of the more than 20,000 met this standard. The best performers were secret service agents; law enforcement personnel and psychiatrists did not outperform other groups. The research also found that experienced arbitrators and mediators were top performers, but not in the same class as Truth Wizards. During communications I had with Professor Ekman in 2005, he opined that the better performance of arbitrators may result from their baseline of objectivity, having an open mind and the reserving of judgment inherent in the being a successful arbitrator or mediator.
Fundamental attribution error occurs when people create their own inferences of the causes of events or the behaviors of others. Attributions can be internal or external, based on the situation. Social psychologists have broadly categorized these as follows:
Interpersonal Attribution: Placing yourself positively in the story.
Predictive Attribution: Creating a pattern based on weak correlations to influence future choices or behavior.
Explanatory Attribution: Two basic or default personal perspectives: optimistic or explanatory style.
People with an optimistic style attribute positive events to stable, internal and global/macro causes, and negative events to unstable, external and specific/micro, causes. Those with a pessimistic style attribute negative events to internal and global causes and positive events to external and specific/micro causes.
There are several theories exploring attribution error. One developed in 1965 is Correspondent Inference Theory: People make inferences about others in cases where their actions are intentional rather than accidental. The inferences are based on the amount of perceived choice t, plus the expected behavior and its effects. Another theory is Common Sense Theory: People observe and analyze the behavior of others and explain it by their own common-sense explanation and views. Fritz Heider developed this model around 1958, postulating that people group these explanations into either external or internal attributions: External attributions stem from situational forces, while internal attributions are blamed on individual characteristics, traits or flaws. In examining ourselves, the tendency is to blame suboptimal outcomes on external forces rather than on our personal characteristics. One explanation for this cognitive bias is that we have asymmetrical information: We know more about ourselves and our circumstances than about others. The more you know about the beliefs, experiences, affiliations, values and proclivities of another person reduces the probability of attribution error.
