ARE YOU A TRUSTEE, BENEFICIARY, OR GRANTOR OF A TRUST?

YOU MIGHT HAVE TO REPORT THAT TO THE GOVERNMENT.

December 20, 2023

A newly enacted law intended to regulate certain business entities will have a significant effect on many trusts. Beginning next month, January 2024, the newly enacted Corporate Transparency Act (“CTA”) will require many companies to report their ownership information to the Financial Crimes Enforcement Network government agency (“FinCEN”). In order to help prevent and combat crimes such as tax fraud, money laundering, corruption, and terrorist financing, the CTA is intended to expose shell companies which are created by criminals to shield owners’ identities and thus enable them to illegally access and conduct business in the U.S. economy.

Under the CTA, if you are a trustee, beneficiary, or grantor of a trust that holds ownership interest in certain types of companies, you may have to report some personal information to FinCEN.

This article will explain:

1.     What companies are subject to the CTA;

2.     What information these companies must report; and

3.     When and how a Trust is impacted.

What companies are subject to the CTA?

Not every company is subject to the CTA. Only corporations, limited liability companies, limited liability partnerships, and entities created by the filing of a document with a Secretary of State are subject to the CTA. All new companies formed after January 1, 2024 will have 30 days from formation to report to FinCEN. Companies that exist before January 1, 2024 will have one year until January 1, 2025 to report to FinCEN.

A business license alone is not subject to the CTA.

Additionally, there are many types of corporations, limited liability companies, limited liability partnerships, and other entities created by the filing of a document with a Secretary of State that are not subject to the CTA. By way of example and not limitation: companies that employ twenty (20) or more employees on a full-time basis in the US, have five million ($5,000,000) dollars or more in gross receipts, and operate in the United States; banks; securities brokers or dealers; venture capital fund advisers; insurance companies; public accounting firms; and public utilities.

What information are these companies required to report?

The company must report its legal name and trade name, address, state of formation, and IRS taxpayer identification number. It must also report the name, birthdate, address, and identification (e.g., driver’s license or passport) of its “Company Applicant,” the individual or individuals who filed the company’s formation documents with the State.

The company must also report its “Beneficial Owners.” A Beneficial Owner includes any individual who, directly or indirectly (e.g., via ownership of another entity), either: (1) exercises substantial control over a company subject to the CTA, or (2) owns or controls at least twenty-five (25%) percent of the ownership interests of a company subject to the CTA. Beneficial Owners must report their name, birthdate, residential address, and identification (e.g., driver’s license or passport).

When and how is a Trust impacted by the CTA?

Like any individual who is a Beneficial Owner, if a Trust directly or indirectly exercises substantial control over or controls at least twenty-five (25%) percent of a company subject to the CTA, the Trust is a Beneficial Owner and must report to the CTA.

Practically, this means that trustees, as well as any individual with authority to dispose of trust assets, such as fiduciaries or trust protectors, may have to report their information to FinCEN. Beneficiaries, however, are required to report only if the beneficiary is the sole permissible recipient of both income and principal from the trust, or has the right to demand a distribution of, or withdraw substantially all of the assets from, the Trust. A grantor or settlor is required to report their information to FinCEN only if the grantor or settlor has the right to revoke the trust or withdraw its assets.

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The CTA’s reporting requirements are a new and developing set of laws in the world of corporate law that will have a significant carryover effect into trusts and estates law. The attorneys at Pashman Stein Walder Hayden, PC remain up to date on any developments involving the CTA. If you have questions on the reporting requirements or are interested in our assistance in complying with the CTA, please contact our Trusts & Estates attorneys.

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The information contained herein is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials do not create an attorney-client relationship between Pashman Stein Walder Hayden P.C. and/or its attorneys, and the reader of the materials.