How the Corporate Tax Act Affects Your Estate Plan

How the Corporate Tax Act Affects Your Estate Plan

The Corporate Transparency Act (CTA) was signed into law in January 2021, and went into effect this year on January 1, 2024. We wrote a blog that fully explains the CTA and what it means for companies, but the short story is organizations are now required to report to the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury about who has an ownership interest in a business. The purpose of the act is to help prevent illegal activities, such as money laundering, tax evasion, terrorism financing, and other crimes.

There have already been legal challenges to the CTA’s constitutionality. While we cannot predict how the CTA might change or play out in the courts, we can help our clients prepare to file a report with FinCEN. 

From an estate planning perspective, the law is important to understand because creating business entities or assigning business interests to trusts in which the trustees have "substantial control" over the business will now trigger a reporting requirement with FinCEN.

The CTA’s Impact On Estate Planning

As it’s written, the CTA might seem to only apply to entities created at the state level. But in actuality, the law will have a significant impact on individuals engaged in estate planning and real estate transactions. For example, if an individual wants to protect their assets and privacy by forming a Limited Liability Company (LLC), corporation, or partnership as part of their estate plan, they will be required to report beneficial ownership information to FinCEN.

Additionally, trustees that are considered a  beneficial owner in a business may need to comply with the CTA’s disclosure regulations.

It’s also worth noting that, because estate planning strategies are often aimed at minimizing tax liabilities, the CTA’s reporting requirements could influence how trusts are used in asset protection. In other words, while the CTA itself doesn’t directly affect tax laws, it could have indirect tax implications on estate planning.

What To Do Next

The CTA is currently facing legal battles, but we advise that our clients comply with the law as it stands. Our attorneys are staying up to date on the CTA and, as part of our estate planning services, will analyze whether your business entities fall within the CTA’s regulations and trigger a report to FinCEN, as well as guide you on what beneficial owner information is needed.

Contact us to learn more about the CTA or how it affects your estate plan.

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