The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, requires certain entities to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN). This regulation aims to increase transparency and combat financial crimes such as money laundering and terrorism financing. A common question that arises in this context is whether trusts need to file a BOI report. The answer depends on specific circumstances related to the structure and activities of the trust. Let’s investigate!

Understanding Beneficial Ownership Information (BOI) Requirements

The CTA mandates that corporations, limited liability companies (LLCs), and other similar entities formed or registered to do business in the United States must file BOI reports. These reports must include detailed information about the beneficial owners of the entity, such as their full legal name, date of birth, residential address, and an identifying number from an acceptable identification document (like a passport or driver’s license).

Definition of a Beneficial Owner

A beneficial owner is defined as an individual who directly or indirectly owns or controls 25% or more of an entity or who exercises substantial control over the entity. The purpose of identifying beneficial owners is to increase transparency and prevent the misuse of legal entities for illicit activities.

Do Trusts Need to File BOI Reports?

Trusts themselves are not typically required to file BOI reports directly with FinCEN under the CTA. However, there are specific situations where the involvement of a trust in the ownership or control of a reporting company triggers BOI reporting requirements:

• Trust as Beneficial Owner: If a trust owns or controls 25% or more of a reporting company, the trust must be disclosed in the BOI report of that company. This includes providing information about the trustees, beneficiaries, and any other individuals who have substantial control over the trust.
• Trustee as Beneficial Owner: If a trustee of a trust exercises substantial control over a reporting company, that trustee may need to be reported as a beneficial owner. This situation arises when the trustee has significant decision-making authority regarding the company’s operations.
• Beneficiary as Beneficial Owner: In some cases, the beneficiaries of a trust may need to be reported if they have a significant ownership interest or control over a reporting company. This typically depends on the specific provisions of the trust and the extent of the beneficiaries’ influence.

Reporting Requirements for Companies Involving Trusts

When a company required to file a BOI report is owned or controlled by a trust, the following information may need to be included:

• Trustees: The individuals serving as trustees who exercise substantial control over the company.
• Beneficiaries: The individuals who benefit from the trust and have significant ownership or control.
• Settlors: The individuals who established the trust if they retain certain powers or benefits.

Examples of Reporting Scenarios

Family Trusts
If a family trust holds a significant ownership interest in a small business structured as an LLC, the LLC must report the trust’s beneficial owners. This might include the trustees and any family members who have a substantial interest or control.

Investment Trusts
In cases where an investment trust holds a diversified portfolio, including significant stakes in various reporting companies, each of these companies must report the trust’s beneficial ownership details, provided the trust meets the ownership or control thresholds.

Complex Trust Structures
For more complex trust arrangements, such as those involving multiple layers of trusts and entities, the reporting requirements can be intricate. Companies must carefully analyze these structures to ensure all relevant individuals are accurately reported as beneficial owners. Have questions? Propel can help!

While trusts themselves do not typically file BOI reports, their involvement in the ownership or control of a reporting company can necessitate detailed disclosures under the CTA. Companies must identify and report any trustees, beneficiaries, or other individuals associated with the trust who meet the beneficial ownership criteria. Understanding these requirements is essential to ensure compliance and avoid potential penalties.

Want to avoid non-compliance and potentially costly mistakes? Let Propel file your BOI report for you! Our team of business compliance specialists can give you peace of mind by staying on top of ongoing FinCEN requirements on behalf of your business or trust – so you can instead focus on the work at hand. Simply say hello and speak with an expert today!