Get ready for an interesting twist in the world of legal and business news. You may already be familiar with the upcoming Corporate Transparency Act, set to kick in next year. If you aren’t, it’s time to get in the know because it could impact you, and if it does, you’ll need support. Starting January 1, 2024, every small business will be obligated to submit an annual report revealing the names of their major owners. Now, here's where it gets intriguing. If you happen to have a Trust that holds partial or full ownership in a business, that business might be required to disclose private details about your trust, including details about the name of your Trustee or beneficiaries, in your annual corporate report to the government.
But hold on, you might be wondering, how do you figure out if your Trust needs to be reported? Fear not, for I have some answers. Keep reading, and you'll soon uncover all the essential details!
What Is the Purpose of the Corporate Transparency Act and What Does It Require?
Enacted in 2020 and set to take effect on January 1, 2024, the Corporate Transparency Act aims to tackle money laundering and terrorism financing schemes involving "shell" corporations—companies that exist merely on paper and don't engage in actual business or trade (like “Vamonos Pest” in Breaking Bad).
Under this Act, small companies will now have to disclose the names of any owners who hold 25% or more ownership in the company, as well as any individuals who exercise significant control over the company's activities. The goal is to identify and expose shell corporations that are frequently involved in money laundering, as such illicit activities tend to occur within small businesses rather than large corporations.
To comply with the requirements, businesses must submit an annual report to the Financial Crimes Enforcement Network (FinCEN) containing the following details about each owner or controller:
Business name
Current business address
State in which the business was formed and its Entity Identification Number (EIN)
Owner/controller’s name, birth date, and address
Photocopy of a government-issued photo ID (such as a driver’s license or passport) of every direct or indirect owner or controller of the company
Failing to file an annual report could result in serious repercussions, from paying a fine of $500 for every day the report is late up to imprisonment for two years.
Does My Trust Need to Be Disclosed?
Since a Trust can own a business or a share of a business, Trusts are also involved in the Corporate Transparency Act, but under more limited circumstances.
So how do you know if your Trust information will need to be disclosed?
Let’s break it down…
The new rule applies to any company that is created by filing a formation document with the Secretary of State or a similar office, such as corporations and limited liability companies (LLCs).
Non-profits, publicly traded companies, and regulated companies like banks and investment advisors are exempt from the rule. Large companies are also exempt if they have 20 or more full-time employees in the US and generate $5 million in sales. So, if your trust owns a share of any of these types of companies, it does not need to be reported.
If you have an LLC or corporation you created but aren’t actively using to run a business, that company is exempt from reporting due to its inactivity, so your Trust would not be reported in that instance, either.
But, if your Trust owns a share of a small, for-profit company (like a small family business or local investment), the beneficial owner of the Trust will need to be reported to the Financial Crimes Enforcement Network.
The beneficial owner is the person or people who benefit from the Trust or have the power to make major decisions about the Trust assets. Depending on how your Trust is written, this is usually the trustee, but it can also be the beneficiaries of your Trust.
Make sure to contact us to have your Trust reviewed before 2024 to make sure you report the correct beneficial owner of your Trust.
Does the Corporate Transparency Act Affect My Trust’s Asset Protection?
One of the best things about creating a Trust is that it provides you and your family with an extra level of privacy and can be drafted to provide asset protection from divorce or lawsuits for your Trust’s beneficiaries after you’re gone.
Thankfully, having a Trust that owns a business or a share of a business doesn’t take away from the Trust’s ability to provide asset protection to your heirs.
And while the new Corporate Transparency Act rule reduces some of the privacy benefits that come with owning assets in a Trust, the names of your Trust, trustees, and beneficiaries are not made public and are only used by the government for the specific purpose of investigating financial crimes.
Because of this, Trusts remain an excellent tool for providing privacy, avoiding probate, and setting up your family with a lifetime of asset protection and financial security.
Guidance for Your Family Now and For Years to Come
If you have a Trust or are curious about creating an estate plan for your family, you may be wondering how changes in the law will affect your plan in the future and how you can possibly plan for them. That’s where I come in. Unlike many estate planning attorneys who serve their clients once and never see them again, I see estate planning as a life-long relationship.
Your life and the world around you are constantly changing, and your estate plan should too. That’s why I keep my clients informed about any changes in the law that may affect their estate plans and offer to review their plans for free every three years to make sure that their plan still works for them just as well as it did on the day they created it.
If you’re ready to create a custom plan for the ones you love or have questions about how the Corporate Transparency Act might affect you, schedule a free call today. I can’t wait to serve you now and for years to come.
This article is a service of Sibley Law & Associates, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
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