Will the Corporate Transparency Act Affect Estate Planning?

April 5, 2023

The Corporate Transparency Act of 2020 (CTA) passed through Congress on Jan. 2, 2021. The CTA was enacted to prevent companies from being able to conceal ownership of businesses where concealment could facilitate illicit activity such as money laundering, financing of terrorism, tax fraud and other foreign corruption acts which harm U.S. national security interests. Reporting requirements of the CTA will provide the information needed to build a searchable, national database of companies formed in the United States.

What Does This Mean for Estate Planners?

The law mandates reporting information regarding entities that may affect many individuals who have done estate planning and asset protection planning. Additionally, owners of real estate may be affected. This type of reporting is new to the United States and is designed to catch the U.S. up with reporting standards that exist in other developed countries. The reporting requirements are not the same as information gathered in tax returns.

Business Entities Created as Part of Estate Planning

The CTA reporting requirements could affect owners and principals involved in almost all business entities, including limited liability companies (LLCs), corporations, limited partnerships and other closely held entities. Many of these entities which were created as part of an estate plan may be subject to the CTA rules.

For example, investment planning might include forming a holding company to aggregate various investments and securities. Small businesses and rental real estate properties are often held in separate entities to afford protection as part of potential lawsuits or creditors. Estate plans often include the creation of one or more LLCs to hold other assets or even entities to fund trusts and handle trust administration. Family limited partnerships are often created to hold investment assets for management or estate tax valuation purposes. These entities are all designed to insulate underlying assets from creditor claims.

Work With Your Estate Planner

Noncompliance to report the required information or provide false or fraudulent information will carry a civil penalty of $500 per day during the period of noncompliance. There is also the possibility of criminal fines up to $10,000 and up to two years of prison time. Experts believe more than 30 million entities will be required to file under the CTA.

Individuals should work with their estate planners to determine how the CTA may impact their estate planning and comply with the recording requirements as necessary. If you would like more information regarding LLCs and Business Planning, please contact KJK Estate Planning Partner Susan L. Friedman (SLF@kjk.com; 216.736.7272).