A recent federal law, the Corporate Transparency Act may have a have an effect on your estate planning. The law mandates reporting to the government that may affect many those who’ve done estate planning, asset protection planning, or own real estate. Forbes’s recent article entitled “Corporate Transparency Act Affects Your Estate Plan” explains that, while users of this information are supposed to be carefully limited to governing agencies, its breadth and disclosures may seem invasive.
The goal of the new legislation is to wade through the entity formalities and find out who truly owns the company and its assets. The Act is part of a growing worldwide effort to thwart illegal activities, including tax evasion, money-laundering, tax fraud and other financial crimes.
This type of reporting is new to the U.S. The rules are quite different than anything that’s been around in the past. The law is designed to have the U.S. catch up to the reporting standards common in other developed countries. These reporting requirements are very different from tax returns.
The CTA reporting requirements could affect the owners or principals behind or involved in almost all business entities. This includes limited liability companies (LLCs), corporations, limited partnerships and other closely held entities. Most of the entities created as part of your planning may be subjected to the new rules:
- Investment planning might include forming a holding company to aggregate securities and other investments. A small business or a rental real estate property are typically segregated into separate entities to avoid a domino effect, if there is a lawsuit involving the underlying asset.
- Your estate plan might include the creation of one or more LLCs designed to hold other assets or even other entities to facilitate trust funding or trust administration. A family limited partnership might be created to hold investment assets for management or estate tax valuation discount purposes.
- If you’re doing asset protection planning, an experienced estate planning attorney may help you to form different entities to insulate the underlying assets from claims of creditors.
Experts say there could be more than 30 million entities that will be required to file.
Reference: Forbes (Feb. 26, 2023) “Corporate Transparency Act Affects Your Estate Plan”
