How to Treat Trusts Used for Estate Planning Purposes Under the CTA

Trusts used for estate planning purposes are generally not considered Reporting Companies, as they most often are not formed by the filing of a document with a Secretary of State’s (or similar) office. However, such trusts are of course often owners and/or control parties of Reporting Companies, and they therefore become most relevant in the course of completing Beneficial Ownership analysis.

As discussed in more detail in our blog post titled “Digging Deeper Into the Meaning of ‘Beneficial Owner’ Under the CTA,” a “Beneficial Owner” is an individual who, directly or indirectly, either (1) exercises substantial control over the Reporting Company, or (2) owns or controls 25% or more of the ownership interests of the Reporting Company. With respect to trusts, an individual may directly or indirectly own or control an ownership interest in a Reporting Company:

• As a trustee of the trust or other individual with the authority to dispose of the trust’s assets;

• As a beneficiary of the trust who is the sole permissible recipient of income and principal from the trust or has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or

• As a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust.

Based on the above, it is possible that more than one person could be a Beneficial Owner of a Reporting Company through trust ownership, and thus Reporting Companies with trusts in their ownership structure should exercise special care in completing the Beneficial Ownership analysis for their entities.

It remains unclear how corporate trustees and investment trustees (or trust fiduciaries whose powers are limited to investment management) are to be treated in the Beneficial Ownership context. We expect that FinCEN will seek to clarify these questions in the near future, as they are questions applicable to many business owners and ownership structures.