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How does the Corporate Transparency Act affect your estate plan?

On Behalf of | Mar 21, 2024

It’s not unusual for some people to utilize complex structures for asset protection and succession planning when creating estate plans. However, the introduction of the Corporate Transparency Act (CTA) and the legal scrutiny it brings to business entities can significantly impact the estate plans of California residents.

Therefore, it’s crucial to understand the nuances of this critical piece of federal regulation and how it affects estate planning.

What is the Corporate Transparency Act?

The CTA is part of the National Defense Authorization Act. At its core, the CTA mandates that certain corporations, limited liability companies (LLCs), and similar entities disclose key information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A “beneficial owner” exercises substantial influence or has ownership of an entity, even though the entity is legally owned by someone else. The CTA aims to detect and prevent illicit activities such as money laundering, terrorist funding or tax fraud.

California is a hub for startups and established enterprises that are structured as LLCs and corporations. While the CTA primarily targets businesses, there are also implications for trusts and estates with interests in these entities. Any that fall under the CTA’s reporting requirements can compromise the privacy and security that trusts offer.

Individuals may need to reevaluate their estate plans regarding their use of LLCs or corporations or consider alternative structuring options that provide similar benefits without triggering the same level of reporting.

Given the CTA’s newness and potential impact on estate plans, it’s crucial to work with someone who can provide guidance on the law’s requirements and adjust estate planning strategies accordingly.