Prepare yourself for a captivating development in the realm of law and business news. The forthcoming Corporate Transparency Act, due to take effect next year, might already be on your radar. If it isn’t, it’s high time to familiarize yourself, as it may influence your situation and require professional assistance. From January 1, 2024, every small business will be compelled to disclose the names of its major owners in an annual report. The plot thickens here. Should your Trust hold either partial or full ownership in a business, the business may be obligated to share confidential information about your Trust, such as the Trustee or beneficiaries’ names, in its annual report to the government.

At this point, you might be contemplating how to ascertain if your Trust falls under this reporting requirement. Don’t worry; I’ve got you covered. Continue reading, and you will soon discover all the critical information you need!

Understanding the Corporate Transparency Act and Its Requirements

Welcome to the world of the Corporate Transparency Act! Enacted in 2021 and due to be implemented on January 1, 2024, this Act has been designed to counteract money laundering and terrorist financing operations that employ “shell” corporations – companies that only exist on paper and do not carry out any actual business transactions (think “Vamonos Pest” from Breaking Bad).

Under this legislation, small firms will be obligated to disclose the identities of any owners possessing a 25% or more stake in the company, as well as any individuals wielding considerable control over the company’s functions. The objective is to unmask and expose shell corporations, which are often implicated in money laundering since these illegal activities usually transpire within small businesses rather than large corporations.

To adhere to the obligations, companies must file an annual report to the Financial Crimes Enforcement Network (FinCEN) detailing the following information about each owner or controlling party:

Failure to submit an annual report could lead to severe consequences, ranging from a daily fine of $500 for each day the report is overdue, to a potential imprisonment of up to two years.

Is Disclosure of My Trust Necessary?

The Corporate Transparency Act also encompasses Trusts as they can own businesses or fractions of businesses, though their involvement is more specific.

Wondering if your Trust’s details need to be unveiled? Let’s clarify…

The new regulation applies to any business formed by submitting an establishment document with the Secretary of State or a similar entity, like corporations and Limited Liability Companies (LLCs).

However, non-profit organizations, publicly traded companies, and regulated firms such as banks and investment advisors are excluded from this rule. Likewise, larger companies with 20 or more full-time employees in the U.S. and revenue of $5 million are exempted. Therefore, if your Trust owns a portion of any of these types of companies, it does not necessitate reporting.

Similarly, if you possess an LLC or a corporation that you established but aren’t actively managing as a business, such a company is exempt from reporting due to inactivity, thus, your Trust wouldn’t be disclosed in this scenario.

However, if your Trust owns a fraction of a small, profit-making company (like a family business or local investment), the beneficial owner of the Trust will need to be disclosed to the Financial Crimes Enforcement Network.

The beneficial owner refers to the individual or individuals who profit from the Trust or have the authority to make significant decisions regarding the Trust’s assets. Typically, it’s the trustee, based on how your Trust is written, but it could also be the beneficiaries of your Trust.

How Does the Corporate Transparency Act Impact My Trust’s Asset Protection?

Establishing a Trust offers substantial benefits, including affording you and your family an enhanced level of privacy and shielding your Trust’s beneficiaries’ assets from potential legal disputes or divorce after your departure.

Fortunately, the asset protection value of your Trust isn’t undermined if the Trust owns a business or part of a business.

While the Corporate Transparency Act might curtail some privacy advantages associated with holding assets in a Trust, it’s important to note that the identities of your Trust, trustees, and beneficiaries are not publicly disclosed. They are only used by the government specifically for probing financial crimes.

Hence, Trusts continue to be an exceptional instrument for maintaining privacy, sidestepping probate, and ensuring your family enjoys lifelong asset protection and financial stability.

If you already have a Trust or are contemplating crafting an estate plan for your family, you might be wondering how future legislative changes could impact your plan and how to effectively prepare for them.

As your life and the world around you continually evolve, so should your estate plan.

That’s why I keep my clients abreast of any legal alterations that could potentially affect their estate plans. Additionally, I offer a complimentary review of your plan every three years to ensure that it continues to serve you as effectively as it did when you first designed it.

If you’re poised to build a custom plan for your loved ones or have queries about how the Corporate Transparency Act might impact you, feel free to schedule a complimentary consultation today.

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.