Corporate Transparency Act Could have an Impact on Estate Plans

Its impact, deliberately, extends much farther than the entities involved and has a significant impact on estate planning in general, and succession planning – especially those involving trusts.

Created to address unlawful activities, such as money laundering and terrorism funding, the Corporate Transparency Act (CTA) has spilled into other areas, including estate planning. A recent article from Forbes, “The Corporate Transparency Act: Estate Planning, Succession Planning, And Trust Administration,” provides an overview of what you need to know and should discuss with your estate planning attorney.

Reporting obligations for trusts and related entities are different. Trusts are not considered “reporting companies” under the law. However, information about beneficiaries and individuals with control or ownership needs to be disclosed. Depending on the trust, this may mean trustees, trust protectors and anyone with substantial control over the trust.

The trusts’ structure needs to be reviewed to ensure compliance with CTA regulations. Changes may be needed, with the biggest shifts in trusts used for succession planning. Here’s why.

If an entity is deemed a “reporting company” under the CTS, beneficial owners are required to be disclosed. Since many succession plans include gradual transfers of company interests, the individuals gaining and giving equity must be reviewed to determine their status regarding reporting obligations.

Determining who is a beneficial owner under the CTA is critical to compliance, which has to occur in tandem with achieving the objective of the succession plan: protecting the family legacy while ensuring business continuity.

Part of the process now requires the roles and responsibilities of all involved parties, delineating who has control and setting up protocols for managing and disclosing shifts in ownership. Beneficial owner information must be kept up to date, adding a layer of administration to trust management.

  • Control structures and documented decision-making processes must be very clear.
  • Information on beneficial owners must be specific; general descriptions like “all my children” won’t do.
  • Overly complex structures used to hide ownership will not withstand scrutiny under the CTA.
  • Inadequate recordkeeping or poor documentation of trust activities will raise concerns.
  • Discrepancies between trust documents and reported information will raise a noncompliance flag. Information reported to the CTA must align with trust documents.

Talk with your estate planning attorney if you have concerns about trusts used in succession plans and how to ensure that they are in compliance. A regular review process to ensure compliance with CTA should be set up to align with legal obligations and secure the goals of the succession plan.

Reference: Forbes (May 17, 2024) “The Corporate Transparency Act: Estate Planning, Succession Planning, And Trust Administration”

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