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What Does CTA Compliance for Trusts Involve?
The Corporate Transparency Act (CTA), designed to curb illicit financial activities by enhancing the transparency of business ownership, requires reporting companies to disclose information about their beneficial owners to FinCEN.
The latest FAQs provided by FinCEN give significant insights particularly around the complexities of CTA compliance for trusts. These guidelines clarify how beneficial owners who use trusts can control reporting companies and outline the responsibilities for reporting when a corporate trustee is involved.
Beneficial Ownership Through Trusts
Did you know that individuals can exert control over reporting companies through trusts? This can occur directly or indirectly through exercising substantial control or controlling ownership interests. Both can be established through contracts, relationships, or other means that define the trust’s influence over the company.
Determining the beneficial owners in scenarios involving trusts requires examining the roles of trustees, beneficiaries, and others within the trust structure based on their control or ownership stakes:
- A trustee may qualify as a beneficial owner if they have authority to manage or dispose of the trust’s assets, or control a significant portion (at least 25%) of the reporting company’s interests through the trust.
- Beneficiaries can be considered beneficial owners if they are the sole recipients of the trust’s income/principal or can demand substantial portions of the trust’s assets.
- Individuals who established the trust, known as grantors, might be beneficial owners if they retain the right to revoke the trust or withdraw its assets.
These roles depend heavily on the specific terms and operations of the trust, indicating that beneficial ownership needs to be evaluated on a case-by-case basis and should be done with the help of a legal professional.
Key Takeaways for Compliance
- Companies must conduct detailed evaluations to determine if trusts or corporate trustees associated with their ownership structure meet the CTA’s beneficial ownership criteria.
- Maintain accurate records of all contractual and operational arrangements with trusts and trustees to verify compliance.
- As relationships or the proportion of ownership interests change, update the reporting to FinCEN to reflect current beneficial ownership information.
By adhering to these guidelines, reporting companies, including those involved with trusts, can ensure compliance with the CTA. The complexity of trusts and varied roles within them necessitate careful analysis to accurately identify beneficial owners under the new regulations.
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