5 minute read

Are You a Beneficial Owner? Find Out What it means for your Estate Plan

A new law that recently went into effect may impact estate plan owners, especially those with Trusts. Find out what your new compliance requirements are.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

On January 1st, 2024, the Corporate Transparency Act went into effect. This federal policy is targeted at small businesses in the U.S., and is designed to help curb illegal practices such as money laundering, tax fraud, and other misconduct that adversely impact the economy.

The Act aims to achieve greater transparency from business owners by mandating them to file a Beneficial Owner Interest (BOI) report. How does this new Act impact business owners from an estate planning perspective? Find out about this new requirement, whether or not it applies to you, and why it's critical to review your estate plan in this guide.

Are You a Beneficial Owner? What to Know about New Reporting Requirements

The Corporate Transparency Act (CTA) was enacted to enhance transparency in the ownership structures of U.S. businesses to combat financial crimes. The law, which went into effect this year, requires certain businesses to disclose information about their beneficial owners to the federal government, unless they qualify for one of the 23 reporting exemptions. These requirements are critical for smaller entities that could otherwise remain under the radar.

A beneficial owner is defined as any individual who, directly or indirectly, exercises substantial control over a company or owns at least 25% of the corporate entity. This reporting will significantly affect the privacy and structuring of businesses that are part of estate assets.

For estate planning, the Act introduces new considerations around privacy, asset protection, and compliance. Trusts, estates, and entities used in estate planning that meet certain criteria will need to disclose their beneficial owners. This requirement could impact decision-making about how estates are structured and how businesses are incorporated into estate plans.

Key Provisions of the CTA

  • Reporting Requirements: Businesses must report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This includes the identities of individuals who own or control more than 25% of the entity or exercise significant control over the entity.

  • Exemptions: Exemptions include large operating companies, banks, and registered broker-dealers, among others.

  • Penalties: There are severe civil and criminal penalties for failing to comply with the reporting requirements.

Key Reporting Requirements

Businesses affected by the CTA must file a report with the Financial Crimes Enforcement Network (FinCEN) that includes:

  • The full legal names, birthdates, and addresses of their beneficial owners.

  • Identification numbers, such as a driver's license or passport number.

  • Details about the business, including its name, address, and taxpayer identification number.

These reports are essential not only at the establishment of the business but also must be updated whenever there's a significant change, such as a change in ownership or control.

Filing Deadlines

Entities who are required to report need to pay close attention to filing deadlines. Entities that were established before January 1, 2024 must file by December 31, 2024. Entities formed in 2024 have 90 days to report from the date of formation. Any entities formed after January 1, 2025 have 30 days to report. Note that you must update your information within 30 days if you move or change your address.

Estate Planning Under the Corporate Transparency Act

Beneficial ownership reporting requirements introduces new considerations for estate planners. In particular, those who make use of Trusts that own business interests may fall under the scope of the Act.

According to Forbes, these are some estate planning scenarios in which you may fall under the scope of the Act:

  • You own an LLC (Limited Liability Company)

  • You have stocks in your family's business

  • Your estate plan has a Trust that owns interest in a business that falls under the reporting requirement

  • You are the Trustee of the Trust above

  • You are the Beneficiary of such a Trust

  • You have the authority to allocate the assets of a Trust subject to the reporting mandates

  • You inherited stocks from someone who fell under the reporting requirement

For estate plans that are impacted by the policy, here are some things to consider:

  • Changes to Privacy Many estate plans use Trusts or other entities to manage and transfer wealth. Under the CTA, any entity that qualifies as a "reporting company" might need to disclose its beneficial owners. This can affect the privacy and management of Trusts that own business interests, particularly when changes in Trust Beneficiaries or Trustees align with the definitions of beneficial ownership under the CTA.

  • Increased Compliance Requirements: Estate planners must now consider the CTA's reporting requirements when designing estate plans. This includes determining whether the estate planning structures involve entities that must comply with the CTA and planning for ongoing compliance with the reporting requirements. This might involve additional administrative work, potential restructuring of entities, or even reconsideration of certain asset protection strategies.

  • Enforcement and Penalties: It's critical to understand the penalties associated with non-compliance. Failing to accurately report beneficial ownership information can result in severe penalties, including fines and possible criminal charges. Estate planners and estate planning professionals must stay informed about the enforcement measures to safeguard themselves against inadvertent violations.

  • Adjustment of Estate Plans: The need for transparency might affect how estate plans are structured. For example, estate planners might recommend different types of entities or ownership structures that minimize the reporting burden while still achieving the client's goals for control and succession.

Tips for Adjusting Estate Planning Strategy

If you determine that you or your estate plan may fall under the scope of the Act, and that a Beneficial Ownership Interest report may need to be filed, here are some tips to consider:

1. Review Existing Structures: Estate owners should review existing corporate structures within their estate plans to ensure compliance. This might involve altering the ownership percentages, redefining control mechanisms, or even changing the jurisdiction under which a business is incorporated.

2. Consider Alternative Structures: For those concerned about privacy or the impact of stringent reporting requirements, exploring alternative estate planning vehicles like different types of Trusts or non-corporate entities may be beneficial. These alternatives may offer different advantages in terms of privacy and control.

3. Consult a Professional: Given the complexity and newness of the Act, consulting with estate planning and other legal professionals is advisable. These experts can provide guidance tailored to your unique circumstances, ensuring that your estate plan is optimized and that you remain under compliance.

4. Stay Informed: As with any new legislation, further guidance and clarifications from regulatory bodies are expected over time. Staying on top of these updates is essential to managing compliance effectively and making informed decisions about estate planning.

Estate Plan Management Made Easy by Trust & Will

The Corporate Transparency Act (CTA) and Beneficial Owner reporting requirement is just one of many examples of how the regulatory landscape is constantly changing, and thus, effectively managing your estate plan and compliance can unfortunately be a moving target at times.

The keys to addressing these changes include studying the changes to understand how they may impact you, making any necessary adjustments, consulting trusted professionals on your team, and ensuring you remain in compliant status.

While the onus of these responsibilities may fall on you, there is one thing that can make your life easier, and that's an estate plan created through Trust & Will. Whether any new regulations impact you or not, you will have better peace of mind knowing that through our online platform, the management of your estate plan is so much easier than the traditional means. With our digital solutions, you can actually perceive your estate plan as a living document and make your revisions within a few clicks of a button, and all from the comfort of your home.

At Trust & Will, we’re here to help keep things simple. You can create a fully customizable, state-specific estate plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our different estate planning and settlement  options today!

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