How The Corporate Transparency Act Affects Your Estate Plan

How The Corporate Transparency Act Affects Your Estate Plan

The Corporate Transparency Act (CTA) is a landmark piece of legislation passed as part of the National Defense Authorization Act for Fiscal Year 2021. It aims to curb illicit financial activities by enhancing the transparency of business ownership in the United States. This Act introduces a significant shift in the regulatory landscape for small businesses, corporations, and limited liability companies (LLCs).

The CTA mandates the disclosure of beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Whether you’re dipping your toes into the waters of estate planning or you’re already swimming laps, the implications of the CTA are profound. This Act is making waves in ways that could soak your estate plan if you’re not careful.

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Understanding The Corporate Transparency Act

Advancements in technology, security issues, and drastic changes in the economic landscape resulted in a global push toward financial transparency. Such a move aims to prevent money laundering, terrorism financing, and other financial crimes facilitated through opaque business structures.

Thus, the CTA came like a gator sliding into the swamp – quietly but with a presence you can’t ignore. Its goal? To snap at the heels of money launderers and financial fraudsters by making business ownership more transparent

As mentioned earlier, certain businesses now have to report their beneficial owner information (BOI) to FinCEN. Think of it as telling Uncle Sam who really holds the keys to the family treasure chest.

Beneficial owners, as defined by the Act, are individuals who have direct or indirect substantial control over an entity or own a significant percentage of it. This broad definition ensures that the CTA captures a wide range of controlling interests, making it harder for individuals to use complex structures to evade scrutiny.

However, BOI reporting isn’t just about big corporations; it’s about the small fish too. If you own a business or have an entity tied into your estate plan, you might need to report who’s behind the curtain. Yes, that could include you, your Aunt Sally, or anyone with a controlling interest.

Then, how does this BOI requirement impact your estate plan?

The Intersection Of CTA & Estate Planning

Estate planning is intricately woven into the fabric of business ownership and asset management. As such, an estate planning attorney often employs LLCs, trusts, and other entities as vehicles for holding and transferring wealth. These structures provide a means to manage and distribute assets according to the grantor’s wishes, often beyond their lifetime.

However, with the CTA’s implementation, estate planning has become like a family BBQ. You want everyone to get their fair share of grandma’s secret recipe, or in this case – assets. Now the CTA is like that one relative who asks too many questions. The Act means some tools you use to pass on assets might need to disclose more info than you want.

Of course, the idea of privacy is as cherished as a quiet day on the beach. However, with the BOI reporting, there’s a chance you’ll have to share details about who’s involved in your estate’s entities. It’s like inviting the whole neighborhood to your BBQ, whether you want to or not.

Speaking of choices, there is no option but to comply with the CTA. Not doing so can spell more trouble than it’s worth.

Compliance With The Corporate Transparency Act

Navigating the compliance landscape of the CTA involves a meticulous review of your estate planning structures in place. Entities that fall within the scope of the Act must furnish information about their beneficial owners. It includes personal details that were previously undisclosed.

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Think of it as RSVPing to a party you’re not sure you want to attend. You’ll need to provide names, addresses, and other details that were previously just between you, your lawyer, and perhaps your financial advisor. This requirement not only adds a layer of administrative burden but also raises concerns about privacy and data security.

Naturally, there are exemptions. This is particularly true for entities that operate exclusively for estate planning purposes. Yet, the criteria for these exemptions are narrow. The best option is to consult with your estate attorney for a comprehensive review of each entity within your estate plan. Doing so identifies those that require action to either comply with the CTA or restructure to qualify for exemptions.

Non-adherence is akin to ignoring a hurricane warning – it’s all fun and games until you’re stuck in the storm. It can also cost you a lot.

Therefore, don’t risk yourself on the receiving end of those stiff penalties – including financial fines and potential criminal charges. The stakes are high, and you must take proactive measures to align your estate plan with the new requirements.

Practical Implications For Your Estate Plan

Adapting to the BOI reporting means reviewing your estate plan meticulously. It is as if you’re preparing for a Florida summer with lots of sunscreens and a plan for sudden storms. It might be a breeze for some, like updating a few documents, but for others, it might feel like trying to barbecue in a hurricane.

Consider a family-owned LLC that holds significant assets or real estate investments. Under the CTA, this LLC would likely need to disclose its beneficial owners. Of course, this affects not only the privacy of the estate plan. It can also reveal strategic information that could impact business operations or family dynamics.

To mitigate these impacts, estate lawyers may need to explore alternatives that maintain the estate’s objectives while minimizing exposure under the CTA. You might need to change how you hold your assets or consider different strategies for maintaining privacy while still complying with the law. It’s a bit like switching from surfing to paddleboarding – you’re still in the water, but the game has changed.

With the Act going into effect in January 2024, the advisory role of estate planning attorneys has never been more critical. They must interpret the complexities of the CTA and also devise strategic solutions that protect your interests now and in the future.

Looking Ahead – CTA & Future Estate Planning Trends

Just as you adapt to the weather, you can adapt to these changes. It might mean more paperwork or rethinking your estate planning strategy. Your estate plan must incorporate compliance while remaining agile in response to future legislative changes.

The Corporate Transparency Act signals a shift into an era where the government wants to know more about who owns what. In response, estate planning is about to get a makeover. It’s all about being transparent.

Therefore, it all boils down to embracing simplicity. Think of it as decluttering your estate plan, making it easier for everyone to understand what’s what. No more hiding the family silver in a maze of legal jargon.

This means keeping your legal documents clean, clear, and compliant. Remember, a stitch in time saves nine, and staying ahead of these changes is better than playing catch-up later.

In the future, there may be changes or clarifications to the Act. Staying informed and working with legal professionals who can navigate these waters will be key to keeping your estate plan on course.

FAQ: Addressing Common Concerns About The CTA

If you have an estate plan in force or planning to get one, the BOI requirement surely must have raised questions. Here are some of them and the answers.

Does The Corporate Transparency Act Impact Individual Estate Plans?

The Act primarily impacts estate plans that involve businesses or entities. It requires the disclosure of beneficial ownership information. If your estate includes interests in such entities, the CTA may require you to report additional details.

How Do Estate Planners Report Beneficial Ownership Information Under The CTA?

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Estate planners report beneficial ownership information for entities under the CTA by filing a report with the Financial Crimes Enforcement Network (FinCEN), including details of individuals with more than 25% ownership or significant control.

When Is It Necessary To Submit Beneficial Ownership Information To FinCEN?

Companies formed or registered before January 1, 2024, must submit their initial beneficial ownership information to FinCEN by January 1, 2025. Those established between January 1, 2024, and December 31, 2024, have 90 days post-notification to file. Companies starting on or after January 1, 2025, must file within 30 days of notification or public announcement.

Are There Any Exceptions Or Exemptions For Certain Types Of Trusts?

Yes, certain trusts are exempt from CTA reporting. It includes trusts that do not have to file with a state to be created and those operated by charitable organizations, among others. It’s crucial to consult with an attorney to determine if a particular trust qualifies for an exemption.

What Penalties Exist For Failing To Comply With The BOI Reporting Requirements?

Failure to comply with the CTA’s reporting policy can lead to civil penalties of up to $500 per day. It also includes criminal fines of up to $10,000 or imprisonment or both. Timely compliance is, therefore, crucial.

Summary

This new provision in the 2021 defense bill aims to reveal the real owners of businesses in the United States to combat crimes like money laundering. It’s like Uncle Sam wants to know who’s hiding behind the curtain. If you’ve got a business or it’s tied to your estate plan, you might have to spill the beans on who’s in charge. 

However, don’t overthink such changes. Sure, you’ll have to share some details you’d rather keep under your hat, like names and addresses. It’s a bit of a headache, but not following these rules can have grave consequences.

The bottom line is that it’s time to give your estate plan a once-over with your estate planning lawyer, ensuring everything is shipshape. You’re navigating through new waters but can keep your estate plan sailing smoothly. Remember, better safe than sorry – get your ducks in a row before the storm hits. 

Schedule a free review of your estate documents today with The Estate Plan.

Last Updated: February 9, 2024

Have questions about how to get started on your estate plan or estate needs?

Have questions about how to get started
on your estate plan or estate needs?

Contact the experienced estate planning professionals at The Estate Plan
by calling us at (305) 677-8489.

Contact the experienced estate planning professionals at The Estate Plan by calling us at
(305) 677-8489.