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Sep
19 • 2024
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Initial Reporting to FinCEN of Beneficial Ownership Information for Estates       

The federal Corporate Transparency Act (“CTA”)[1] requires tens of millions of American business entities to report specified information concerning their beneficial owners[2] to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury. The requirement to report such beneficial ownership information (“BOI”) to FinCEN took effect on January 1, 2024,[3] with initial reports for all non-exempt entities formed or registered to do business in the United States before January 1, 2024 due to be filed by January 1, 2025.[4] With the deadline approaching for existing entities to file their initial reports with FinCEN, there are still issues as to how to report BOI in some instances. This article deals with the question of what to do when a beneficial ownership interest in a reporting company is owned by an estate when the initial report is filed.

As far as we can tell, this circumstance is not dealt with in the CTA, FinCEN’s BOI reporting rule, or in any of the guidance concerning BOI reporting issued to date by FinCEN. In fact, it appears that the only mention FinCEN has made of estates concerns the filing of updated, rather than initial, reports. FinCEN’s BOI reporting rule generally requires the submission of an updated report “[i]f there is any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners, including any change with respect to who is a beneficial owners or information reported for any particular beneficial owner.”[5] In the case of a beneficial owner whose property interests or other rights are subject to transfer upon death, and the individual dies, FinCEN’s reporting rule specifies that a change in the information required to be reported to FinCEN is not deemed to occur until the estate of the deceased beneficial owner is settled, at which time an updated report identifying any new beneficial owners must be filed.[6] But that does not answer the question as to what must be reported when a beneficial owner dies before an initial report must be filed and that person’s estate has not yet been settled, and may not be settled for years if, for example, the estate is contested.

In that circumstance, we believe that the estate should be treated somewhat like a trust, which is an entity for which FinCEN has provided guidance, as we discussed in a previous article.[7] FinCEN has made clear that beneficial owners of reporting companies “must be individuals (i.e., natural persons)” and cannot be “trusts, corporations, or other legal entities” such as estates.[8] To be a “beneficial owner,” the individual must exercise “substantial control” over the reporting company, such as by having the authority to direct, determine, or have substantial influence over important decisions made by the company.[9] With regard to a trust, FinCEN has identified three individuals who will be deemed to own or control trust assets (such as stock) for the purpose of determining who must report: (1) “a trustee of the trust or other individual (if any) with the authority to dispose of trust assets”; (2) a beneficiary who (a) “[i]s the sole permissible recipient of income and principal from the trust” or (b) “[h]as the right to demand a distribution of or withdraw substantially all of the assets from the trust”; and (3) “a grantor or settlor who has the right to revoke the trust or otherwise withdraw the assets of the trust.”[10] In the case of an estate, the decedent no longer has any authority to make changes and the beneficiaries have minimal rights until the estate has settled (as FinCEN has determined in the context of filing updated reports), so the only remaining individual who might be considered to have “substantial control” over the estate is the administrator (or whatever term is used in the state in question). Therefore, we think that when an estate owns stock or another interest in a reporting company at the time that an initial report has to be filed with FinCEN, the administrator is the most logical person to be reported as the beneficial owner. Once the estate settles, then the reporting company can file an updated report to identify the individual or individuals to whom the beneficial ownership interests have been transferred.

[1] The CTA is codified at 31 U.S.C. § 5336.

[2] With regard to who is a “beneficial owner” of a reporting company, see, e.g., eMinutes, FinCEN Reporting — Yes It Is Really Happening (Feb. 23, 2023).

[3] FinCEN’s BOI reporting rule implementing the CTA is codified at 31 C.F.R. § 1010.380.

[4] 31 C.F.R. § 1080(a)(1)(iii); FinCEN, Small Entity Compliance Guide v. 1.1, at 42 (Dec. 2023) [hereinafter “Small Entity Compliance Guide”]. See generally eMinutes, FinCEN Now Requires Reporting of Beneficial Ownership Information for All Companies that Had Any Existence On or After January 1, 2024 (July 11, 2024).

[5] 31 C.F.R. § 1080(a)(2)(i).

[6] Id. § 1080(a)(2)(iii); see also FinCEN, Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498, 59,511 to 59,513 (Sept. 30, 2022) (explaining this provision in the reporting rule).

[7] See eMinutes, FinCEN Reporting of Information Concerning Beneficial Ownership Held by Trusts (Jan. 17, 2024).

[8] FinCEN, Beneficial Ownership Information Reporting Frequently Asked Questions, FAQ D.1, at 12 (updated July 8, 2024).

[9] See 31 C.F.R. § 1080(d)(1)(i).

[10] Id. § 1010.380(d)(2)(ii)(C); see also FinCEN, Small Entity Compliance Guide, supra note 4, at 21.