Originally published: September 29, 2023 (distributed by Andrews McMeel Syndication)
There is a new act in town: The Corporate Transparency Act (CTA) will require disclosures starting Jan. 1, 2024. Just because the title includes the word "Corporate," trustees of trusts shouldn't ignore it. It may apply to trusts in certain cases, as well as family-limited partnerships.
The CTA is aimed at thwarting "malign actors" who "seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity" (tinyurl.com/bdf2xjb2). The mechanism is through a mandated disclosure called a "BOI," which stands for beneficial ownership information. The BOI is to be filed with U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN).
What is included in the BOI? "A beneficial owner will be required to provide full legal name, date of birth, current residential address, and a unique identifying number from an acceptable identification document (e.g., a non-expired passport or a non-expired driver's license)," according to attorney Ruth Ann Stauffer, of counsel with Anderson Kill P.C., a New York-based law firm.
Since trusts are considered to be "private," does the BOI open trusts up to public scrutiny?
"At a minimum, there could be a disclosure of 'beneficial owner' information, though that may only include information related to the trustee depending on the terms of the trust," attorney Stephen M. Napier, a member of the law firm Berkowitz, Trager & Trager LLC, explained. "There are also significant open questions as to whether certain powers held by an individual within a trust makes that individual a beneficial owner."
However, only some, not all, revocable and irrevocable trusts will be required to file BOIs, according to Mark Friedlich, Esq., CPA, and vice president of U.S. government affairs for Wolters Kluwer Tax and Accounting.
A trust will need to report BOI if it owns more than 25% of a domestic reporting company, defined by FinCen as "corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States" (tinyurl.com/bde8csbz).
"In addition, a trust that is acting as a trustee for another trust would need to report its BOI if the other trust is a domestic reporting company," Friedlich explained.
Further, "individuals with power to dispose of assets of a trust that holds ownership interests of a reporting company may be considered as controlling the ownership interests held in trust and, thus, be beneficial owners if such ownership interests amount to 25% or more of the entity's ownership interests," Friedlich explained. "Business trusts, including statutory trusts and Massachusetts trusts, may also be considered reporting companies."
Friedlich cautions that "FinCEN is still in the process of drafting regulations and other guidance regarding CTA and BOI information reporting; in addition, they continue to collect public comment for other guidance they have already issued on an interim basis."
"Beneficial ownership information is not to be available to the public nor to requests under the Freedom of Information Act," explained Stauffer.
FinCEN is developing the rules that will govern access to and handling of beneficial ownership information. However, FinCEN reports that financial institutions will have access "in certain circumstances, with the consent of the reporting company," as will government officials, again in certain circumstances (tinyurl.com/bde8csbz).
My read: Don't be surprised by this new reporting requirement. It's one of these "need to know" developments that keeps lawyers on their toes.
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