BREAKING NEWS: 12/3/24: Today a Federal Court in Texas ruled that the reporting requirements under FINCEN are unconstitutional. An Alabama federal court issued a similar ruling earlier this year and the federal government determined it applied to the plaintiffs of that case only, but the Texas case appears to apply to everyone, nationwide. Stay tuned…

Understanding the Corporate Transparency Act What You Need to Know as a Trustee of a Trust

Recently, the Financial Crimes Enforcement Network (FinCEN) adopted a significant piece of legislation called the Corporate Transparency Act (CTA). This important rule has flown under the radar for many, but it is essential to take note of, especially if you are a small business owner. Further, if you are thinking of including a trust as part of your estate plan or if you are a current trustee or beneficiary under a trust agreement, this article explains how the CTA could affect you.

What is FinCEN?

First things first – what exactly is FinCEN? FinCEN is the financial watchdog of the United States. It is a bureau within the US Department of Treasury tasked with safeguarding the financial system from financial crimes including, among other things, money laundering and tax evasion. Its goal is to promote national security through the collection and analysis of financial information.

Corporate Transparency Act Overview

The CTA was enacted to combat financial crime by imposing new requirements that “Reporting Companies” report details regarding their beneficial owners, defined by the CTA as Beneficial Owner Information (BOI). As the name suggests, the CTA is all about transparency – ensuring that the folks behind the curtain are known, especially those who may be attempting to hide illicit activities.

Reporting Requirements

A Reporting Company is any entity established in the United States by filing a document with a Secretary of State. Most smaller entities or businesses, like Limited Liability Companies (LLCs), Partnerships, and closely held Corporations are subject to the CTA’s reporting requirements. Tax-exempt entities and large operating companies are exempt from the CTA.

A Beneficial Owner is any individual who either exercises substantial control over or owns at least 25% of the ownership interests in a Reporting Company. The CTA requires Reporting Companies to report information about their Beneficial Owners, including:

• Name
• Date of Birth
• Residential Address
• A unique identifying number from either a passport or U.S. driver’s license, the name of the issuing State of the passport or U.S. driver’s license, and a picture of the passport or U.S. driver’s license

 

Related Post: 3 Simple Benefits Of a Living Trust

 

Impact on Trustees and Beneficiaries

You might be wondering how this impacts you as a trustee or beneficiary. In Connecticut, Trusts serve various purposes, including privacy, asset protection, probate avoidance, charitable giving, wealth management, and providing for minors. Trusts are generally not formed by filing with the Secretary of State, but instead are formed by a Trust agreement. This means that most trusts will not be considered a Reporting Company. However, a Trust can own or control a Reporting Company through a trust.

Whether a trust must file Beneficial Ownership Information under the CTA depends on its specific circumstances and activities.

When Trusts Must File BOI

1. Trusts Owning Legal Entities:
   • If a trust owns or controls a reporting company (e.g., a corporation, limited liability company, or similar entity), the trust may need to provide information about its beneficial owners.
   • Beneficial ownership includes individuals who:
     • Exercise substantial control over the entity.
     • Own or control at least 25% of the entity.
2. Trustees, Grantors, and Beneficiaries:
   • Trustees or other fiduciaries acting on behalf of the trust may need to be disclosed if they meet the criteria of beneficial ownership.
   • Beneficiaries might also be reportable if they have substantial control or receive significant financial benefits from the entity.
3. Complex Ownership Structures:
   • Trusts used as part of larger, layered ownership structures may require detailed BOI reporting to identify the ultimate beneficial owners.

When Trusts May Be Exempt

1. Standalone Trusts:
   • A trust itself is not a reporting company under the CTA and typically does not need to file BOI unless it owns or controls a legal entity.
2. Exempt Entities:
   • Trusts linked to entities that qualify as exempt under the CTA (e.g., publicly traded companies, certain nonprofits) may avoid the reporting requirements.

Failure to comply with BOI reporting when required can result in significant penalties, so it is crucial for trustees to carefully assess their obligations under the CTA.

 

Related Post: Another Reason To Put Your Property In a Trust

 

Filing Deadlines

The deadlines for submitting Beneficial Ownership Information reports to FinCEN are as follows:

For Entities Created or Registered Before January 1, 2024:

• These entities must file their initial BOI reports by January 1, 2025.

For Entities Created or Registered Between January 1, 2024, and December 31, 2024:

• These entities have 90 calendar days from the date they receive actual or public notice of their creation or registration to file their initial BOI reports.

For Entities Created or Registered On or After January 1, 2025:

• These entities are required to file their initial BOI reports within 30 calendar days of receiving actual or public notice of their creation or registration.

Penalties for Not Filing 

Failing to comply with Beneficial Ownership Information (BOI) reporting requirements can lead to significant penalties:

Civil Penalties:

• A daily fine of up to $591 for each day the violation continues. This amount is adjusted annually for inflation.

Criminal Penalties:

• Willful violations may result in fines up to $10,000 and imprisonment for up to two years.

These penalties apply to individuals and entities that fail to file, provide false information, or neglect to update previously reported BOI as required by the Corporate Transparency Act. It’s crucial to ensure timely and accurate reporting to avoid these severe consequences.

Filing can be done via the FINCEN website. For more information, please click here https://boiefiling.fincen.gov/

If you have questions or concerns regarding your trust and navigating the intricacies of the CTA’s reporting requirements, the experienced estate planning attorneys at Reed Wilson Case can help you!

Disclaimer: The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only.

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