Corporate Transparency Act May Change the Discussion.

There could be many different tax and legal obligations that a person you appoint in your estate planning documents might have to address. The most obvious might be that a trustee of a trust has to file income tax returns and possibly pay state and federal income tax on trust income. While this discussion focuses on the Corporate Transparency Act (“CTA”) there are others. The point is that fiduciaries and others you appoint may face various tax and legal compliance requirements. They will often require professional guidance to comply with these requirements. 

In the past, it had been common for whoever set up a trust to perhaps only inform the trustee of their role in an irrevocable trust. Other fiduciaries or appointees (e.g., trust protector, person holding a power to appoint a new beneficiary, a person holding a power of appointment, etc.) sometimes were not informed of their role, nor were they required to sign the trust document. The silence/don’t inform approach assures surprise when the appointment becomes real and that the person appointed may have little idea of what their role is or what your wishes are. However, not informing an appointed person may present a hazard beyond the fiduciary’s mere discomfort at the prospect of assuming their role. 

If the trust is deemed a beneficial owner of a reporting company under the CTA, people named in that trust, or your will, may have to report personal information to the Financial Crimes Enforcement Network (“FinCEN”) or provide that information to the reporting company. If reporting is possible, then those involved must not only be aware of their appointment and perhaps should assuredly sign a counterpart to the trust document, but they will have to consent to provide the confidential information required by FinCEN. Rather than providing that personal information (date of birth, home address, Social Security Number, and a copy of personal identification like a driver’s license) to the reporting company, they may instead provide that information directly to FinCEN, obtain a FinCEN Identifier number, and then provide that number to the trust or reporting company for CTA compliance purposes. Thus, the CTA may make it more important for you to speak with those appointed in a fiduciary capacity that might be within the ambit of the CTA.

Also, if you ever modify a trust (e.g., from a process called decanting where you pour the existing trust into a new trust) or in other ways or change people appointed to various roles, the information filed with FinCEN may have to be updated in as little as 30 days.

The CTA (and other) governmental reporting requirements may affect who you appoint to different roles in your plan, and even how those roles might be arranged.