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California Probate and Trust Legal Summary – Spring 2024

Catanese & Wells, A Law Corporation provides a quarterly newsletter to the California probate and trust professional community including lawyers, accountants, professional fiduciaries and insurance providers.

This issue of the Probate and Trust Legal Summary addresses the recently enacted “The Corporate Transparency Act” (the “CTA”) which went into effect on January 1, 2024. The CTA is part of the Anti-Money Laundering Act of 2020. The stated purpose of the CTA is to combat the use of shell companies engaged in money laundering, fraud and other illicit activities by establishing a national registry for beneficial owners or controlling persons of various entities. Generally, the CTA even applies to small businesses and trusts with ownership in a closely-held business like a limited liability company or corporation.

Information on a business entity, its owners, its lawyers or persons who formed the entity must be electronically filed with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCen”) which will manage the database.

A “Reporting Company” is required to file information on its beneficial owners. Reporting Companies include limited liability companies, limited partnerships and corporations. In general, entities that have non-obvious owners. A “Beneficial Owner” is defined as a person (an individual) who owns, directly or indirectly, at least 25% of a Reporting Company or exercises “substantial control” over the Reporting Company. An individual is deemed to exercise substantial control if they hold an executive officer position in the Reporting Company.

Note: For trusts a Beneficial Owner includes – a trustee, a person named in the trust with the power to dispose of trust assets, a beneficiary of a trust who is the sole recipient of income and principal from the trust, or a beneficiary who has the right to withdraw substantially all of the trust assets. It also includes a grantor of a revocable trust. Problems may arise with special trustee positions or with persons who may be deemed to have “indirect” Beneficial Ownership in the trust as these areas are open to interpretation.

Information to be filed includes – the name of the Reporting Company, its principal address, the jurisdiction of formation and its taxpayer identification number. For each Beneficial Owner the filing includes – full legal name, date of birth, current address, identification number (driver’s license or passport) and an image of the document with the identification number.

Note: The disclosure requirements are very rigorous and leave little room for lack of full disclosure as required by the CTA.

Reporting Companies and Beneficial Owners can apply for a special FinCen Identifier if they are frequent filers under CTA. This is similar to an airport Homeland Security identification card.

For entities formed before January 1, 2024, filing is required before January 1, 2025. For entities formed after January 1, 2024, the filing is required within 90 days of formation.

Penalties for willful non-compliance include a civil penalty of up to $500/day capped at $10,000.

The CTA presents new compliance issues for trusts and entities alike. Whether old or new – a trust and any entity should be careful to comply with the CTA where needed. Good legal and accounting counsel are very important given the scope and nature – policy – of the CTA.

For further guidance regarding the above, the reader is encouraged to contact the law offices of Catanese & Wells, A Law Corporation at www.cataneselaw.com at (818)707-0407.