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It’s Time to Get Our Act Together: Trustees, Family Offices, Private Trust Companies and the Corporate Transparency Act

Jan 15, 2024

At the 58th Annual Heckerling Institute on Estate Planning, Nancy G. Henderson of Henderson, Caverly & Pum LLP; Jocelyn Margolin Borowsky of Duane Morris LLP; and Benetta Y. Park of Johnson Keland Management, Inc. presented on the Corporate Transparency Act, specifically in the context of trustees, family offices and private trust companies.

The Corporate Transparency Act (“CTA”) is Congress’s attempt to thwart the use of certain entities for purposes of money laundering, tax evasion, and a myriad of other illegal activities. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCen”) has been tasked with the implementation of this newly enacted law through regulations. The regulations create a national database of personal information concerning individuals who, directly or indirectly, own or control a substantial interest or have substantial control over certain types of entities. The control can be exercised through any contract, arrangement, understanding, relationship or other means. The reporting entities can be either domestic or foreign. Ms. Henderson went on to explain what constitutes a reporting company, who might be considered a beneficial owner, and the responsible parties who are required to report.

The CTA is quite complex and in certain areas not entirely clear. As an example, Ms. Henderson pointed out that there are currently 23 listed exemptions from the CTA reporting requirements. Additionally, failure to comply can result in both civil and criminal penalties. The panelists agreed that the CTA undoubtedly casts a wide net and will cause reporting requirements for persons that would normally have no knowledge of the rules or of the need to report. The panelists cited various examples of small entities and scenarios for which the reporting rules would be burdensome and perhaps not intended to cover.

The CTA can be applicable to trusts. When a trust owns 25% of a reporting company, or a trust party has substantial control over a reporting company, the CTA will apply. Ms. Borowsky discussed the various persons in a typical trust structure that could be required to report. The list of parties that might have reporting requirements under a trust structure are obvious and at times not so obvious. They include the trustee, a trust protector depending on their authority, a beneficiary depending on their specific interest and powers, and even the grantor of a trust. The panel also pointed out other persons within a trust structure that could be required to report, including persons with a power to substitute assets and even persons serving on the investment or distribution committee of a trust.

Ms. Borowsky pointed out that in many instances there is no bright line or definitive answer as to who may be required to report under a trust structure. An analysis and interpretation of the trust agreement and the roles and powers of the various parties will need to be reviewed. Determinations will need to be made and the panel stressed that positions may need to be taken under a reasonable interpretation of the law. Further clarification of the regulations may result in changes to the initial determination and perhaps amendments to an original filing.        

The CTA can also be applicable to family offices and private trust companies. Ms. Park indicated that family offices and private trust companies, by reason of their structure, could be considered reporting entities. The same rules in determining CTA reporting requirements and beneficial owners will be applicable to these entities. However, the entities may fall into one of the available 23 exemptions to filing (specifically, the Large Operating Company exemption or, in the case of a private trust company, the Bank Exemption). These exemptions will be dependent on the structure of the entities and their operations.

If there is a reporting requirement, various persons within the family office or private trust company could be required to report. Ms. Park stressed again that persons serving on investment and distribution committees may have a reporting requirement based on their power and authority. These persons could be other family members or perhaps employees of the entity who consider these reporting requirements to be burdensome and invasive. This may limit the willingness of persons to serve in these roles. Undoubtedly, the new regulations will impact planning and structuring both in family offices and private trust companies.

The new Corporate Transparency Act is a complex piece of legislation that will impose a substantial burden on the general public. The uncertainty as to who it applies to will impose a significant burden on taxpayers to make this determination.  Practitioners should educate themselves on the changes to help their clients comply with the reporting requirements.


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Roberto Viceconte

Roberto Viceconte is a Tax Partner providing private services to high net worth clients.

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