Corporate Transparency Act: Implications to Estate Planning

This article was originally posted on Steve Leimberg’s Business Entities Email Newsletter Archive Message #280.

The Corporate Transparency Act (“CTA”) is a new federal law that will impact the owners, principles and other control persons involved in almost all limited liability companies (LLCs), corporations (both C and S corporations), limited partnerships (LPs), and other closely held entities, as well as those who form those companies. Congress enacted the CTA in 2021 as part of the National Defense Authorization Act for Fiscal Year 2021. The  principal purpose of the CTA is to strip U.S. shell companies of anonymity that can hide illicit financial activity and for use in financing terrorist activities.

But the reach will be very broad and will impact millions of legitimate small businesses. This is accomplished by requiring “reporting companies” to file information with the Federal government about those who control or own interests in them. There are exceptions to these filing requirements that are discussed below; generally, those exceptions apply to very large or already-regulated industries. Most of the entities created by individuals as part of an investment plan (e.g., a holding company for securities or  owning rental real estate or almost any type of a small business,), an estate plan (e.g., an LLC designed to hold various investments to facilitate trust funding or administration), or asset protection planning (any entity created to insulate the assets it holds, or to insulate those who own the entity for claims arising from the assets the entity holds) likely will be subjected to the new reporting rules. Unlike most laws which are aimed at larger entities, the CTA is aimed at smaller ones: those with fewer than 20 fulltime employees or whose gross receipts for the prior year do not exceed $5 million

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