As you may know, an estate plan must be reviewed and updated to reflect changes in your life or assets. Another reason is due to new and changing laws and regulations.
One new law, the Corporate Transparency Act, may significantly impact your estate plan if you plan to pass on the family business. Therefore, it’s important to understand precisely what it is and its implications.
What is the Corporate Transparency Act?
The Corporate Transparency Act(CTA) is a US federal law that goes into effect beginning January 1, 2024. Its purpose is to enhance financial transparency and ensure businesses aren’t engaged in activities such as money laundering, funding terrorists or other illegal financial transactions.
The CTA will require companies to file reports regarding their “beneficial owners,” the individuals who control or own a significant percentage of these companies. This law even impacts small businesses since it covers Limited Liability Companies (LLCs), corporations and limited partnerships registered to do business.
So, what does this mean for estate planning?
Some families create LLCs to operate a family business or protect assets. Various types of assets, including rental properties, investment accounts, and family businesses, can all be placed in the LLC. Ownership of the assets is divided among the family members who are part of the LCC.
However, it’s important to note that a family LLC is subject to the same regulations as traditional LLCs, so it would need to comply with all the state and federal laws. That means that a family LLC may need to follow all the requirements set forth by the Corporate Transparency Act, which includes the disclosure of all the owners. Failure to comply with the CTA’s reporting requirements could result in a $500 per day fine, with a maximum fine of $10,000 and two years in prison.
If your estate plan involves covered entities or a family LCC, you may need to evaluate how your plan is structured. You may need to consider different arrangements. Since the law goes into effect at the beginning of 2024, reviewing your plan as soon as possible is imperative.