A Broad Reach

A Broad Reach

We’ve been posting, along with many others, about the new federal Corporate Transparency Act. (Read our overview here.) The Act requires most small and medium-sized companies (“Reporting Companies”) to disclose to the U.S. Treasury Department identifying information about the individuals who directly or indirectly control the Reporting Company or who own or control at least 25% of the ownership interests in the company.

The Act clearly targets company owners and senior officers. What is not so clear at first blush is that its reach also extends to certain trustees. If a trust holds at least a 25% ownership interest in a Reporting Company, the trustee is deemed to indirectly control the company and must report his or her own information and information about the trust beneficiaries if:

  • A beneficiary is the sole permissible recipient of the income and principal of the trust;
  • The beneficiary has the power to demand a distribution from the trust or withdraw substantially all the trust assets; or
  • The settlor of the trust has the power to revoke the trust or withdraw its assets.

Some trustees and beneficiaries are exempt from reporting: Corporate trustees not controlled by the trust’s beneficiaries, minor children (although their parents’ or guardians’ information must be reported), employees of the trustee (other than senior officers), and beneficiaries who only have a future interest in the trust.

Ensuring compliance with the requirements of the Act will require ongoing diligence and, in many cases, analysis. Please let us know if we can help. You can reach us at 248.477.6300.

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