As the days pass by in 2023, we realize that 2024 will be here before we know it and it’s important for estate and business planning clients to understand how the Corporate Transparency Act (CTA) will affect them. The CTA was signed into law in 2021, as part of the National Defense Authorization Act for Fiscal Year 2021, and requires certain entities to report information about their beneficial ownership to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). While the law is intended to prevent fraud and increase transparency, it can have significant implications for estate and business planning clients who own entities.
The CTA Requirements
Under the CTA, certain entities, including corporations, LLCs, partnerships, and other similar entities that are formed or registered to do business in the United States, are required to report information about their beneficial owners to FinCEN. Specifically, the CTA applies to entities that are not already subject to similar reporting requirements under existing law, and that have either:
1. At least 20% ownership or control by a foreign person, or
2. A single beneficial owner that meets certain other criteria (such as having significant control over the entity).
Entities that are subject to the reporting requirements of the CTA must report certain information about their beneficial owners, including their full legal name, date of birth, residential or business address, identification number, and ownership interest in the entity.
How the 2024 CTA Will Affect Estate and Business Planning Clients
It’s important for estate and business planning clients to understand how the 2024 CTA will affect them. While the basic requirements of the CTA are not expected to change significantly, there may be changes in the way that the law is enforced, or in the penalties for noncompliance. Clients who are subject to the reporting requirements of the CTA will need to ensure that they are in compliance with the law and may need to adjust their planning strategies in light of the increased transparency created by the law.
For example, clients who have created trusts or other structures to hold assets may be subject to the reporting requirements of the CTA if those structures are considered covered entities under the law. Similarly, clients who have formed corporations, LLCs, or partnerships may be required to report information about their beneficial owners.
Clients who are affected by the CTA will need to take steps to comply with the law, which may include gathering and reporting information about their beneficial owners. This can be a time-consuming process, especially for clients who have complex ownership structures or who have not kept detailed records of their ownership interests.
In addition to compliance with the CTA, estate and business planning clients may also need to consider the potential impact of the law on their future planning strategies. For example, the increased transparency created by the CTA may make it more difficult to maintain privacy and confidentiality in estate planning and business transactions. Clients may need to work with their advisors to find alternative strategies that can provide the same benefits without triggering the reporting requirements of the CTA.
The Corporate Transparency Act is an important law that affects estate and business planning clients who own entities. Clients who are subject to the reporting requirements of the CTA will need to take steps to comply with the law and may need to adjust their planning strategies in light of the increased transparency created by the law. As we approach 2024, clients should work closely with their advisors to ensure that they are in compliance with all applicable laws and regulations and to develop strategies that meet their individual needs and objectives.