Corporate Transparency Act for Trusts—Explained

The Corporate Transparency Act (CTA), which came into effect on January 1, 2024, was originally designed to require certain trusts to report their beneficial ownership information (BOI) to FinCEN. Assuming enforcement resumes, if your trust qualifies as a "reporting company" under the CTA, you'll have to keep its BOI details up to date with FinCEN by sending the initial and updated BOI reports.

However, a trust that constitutes a "reporting company" but also qualifies for an exemption under the act is not obligated to report BOI information.

In this article, we'll explain how the Corporate Transparency Act works for trusts, helping you understand if your trust is a reporting company or an exempted entity, who are its beneficial owners, and what kind of information it should report to FinCEN. We'll also introduce you to Harbor Compliance and show how it can help organizations expedite the BOI reporting process.

Does the Corporate Transparency Act Apply to Trusts?

Any U.S.-based or foreign trust formed by filing a document with the secretary of state or similar authority is considered a reporting company under the CTA. Accordingly, such trusts will have to report information on their beneficial owners to FinCEN.

Keep in mind that certain trusts are registered with a court of law with the sole purpose of establishing the court's jurisdiction over any disputes involving such trusts. Although technically formed by filing a document with relevant authorities, these trusts are not considered reporting companies under the CTA and are not expected to comply with the beneficial ownership information reporting (BOIR) requirements.

Meanwhile, a trust that would otherwise be considered a reporting company will not have to report its BOI if it qualifies for an exemption. There are numerous exemption groups with their own sets of qualifying criteria, as elaborated in the next section.

Are Trusts Exempt From the Corporate Transparency Act? Key Exemption Groups Under the CTA

The CTA outlines 23 types of entities exempt from the BOI reporting rule, along with the criteria that have to be met to qualify for each exemption. The exemption categories a trust is most likely to fall into are:

Large Operating Company

To be exempt from the BOI reporting requirements as a large operating company, your trust has to meet all of the following requirements:

1. Reporting more than $5 million in gross annual revenue or sales
2. Having more than 20 full-time employees in the U.S.
3. Maintaining a presence at a physical office in the U.S.

Inactive Entity

If your trust has not been operative for some time, you may be exempt from reporting BOI information to FinCEN. An organization will only be considered inactive if it fulfills the following criteria:

• It was formed on or before January 1, 2020.
• It is not engaged in active business.
• It is not owned by a foreign person in any capacity.
• It has not changed ownership within the last year.
• It has not conducted any transaction worth more than $1,000 in the past year.
• It does not currently possess any assets in the U.S. or abroad.

Tax-Exempt Entity

If your trust is a tax-exempt organization under relevant sections of the IRS Code, such as 501(a) and 527(a), it won't have to report its BOI. These include various religious, charitable, and political organizations.

The CTA also exempts trusts described as such in paragraphs (1) or (2) of Section 4947(a) of the IRS Code from submitting BOI reports to FinCEN.

Trusts That Own or Control a Reporting Company

While trusts can qualify as reporting companies themselves and be subject to CTA's reporting requirements, many of them own or control other reporting companies that have to report information on their beneficial owners. In this case, the reporting company owned or controlled by the trust has to provide information on the individuals within the trust if they:

• Exercise substantial control over the company
• Own or control at least 25% of the company's ownership interests

When Is a Trustee or Another Individual Associated With a Trust Considered a Beneficial Owner of a Reporting Company?

A trustee can "exercise substantial control" over a reporting company in multiple ways, most notably through:

• Representation as a board member
• Controlling or owning the majority of the voting power or voting rights
• Having certain rights stemming from a financing arrangement or interest within the company
• Financial and business arrangements and relationships
• Controlling intermediary entities that exercise substantial control over the reporting company
• Any other contract, relationship, arrangement, etc.

Alternatively, a trustee or another individual associated with a trust can qualify as a beneficial owner by holding an ownership interest in the reporting company. They can do that by:

1. Being a trustee of a trust or another person entitled to dispose of its assets
2. Acting as a beneficiary who is either the sole recipient of the trust's income or a person authorized to distribute and withdraw the trust's assets
3. Serving as a settlor or grantor authorized to revoke the trust or withdraw the trust's assets

Individuals Exempted From the Beneficial Owner Definition

Even if an individual qualifies as a beneficial owner of a trust that is a reporting company or a trust owning or controlling a reporting company, their information won't have to be reported if they're:

1. Inheritors
2. Minors
3. Creditors
4. Nominees, agents, custodians, or intermediaries
5. Employees

Note that there are additional rules for some of these exempted groups. For instance, if a beneficial owner is a minor, you'd still have to report information about their parents or legal guardians to FinCEN. Once the minor reaches adulthood, you'll have to file an updated BOI report containing their information.

Beneficial Ownership Information Reporting Companies Must Provide

Here's a list of all the information reporting companies have to provide on their beneficial owners:

1. Full legal name
2. Date of birth
3. Residential address
4. Unique identification number
5. Image of the document used for the unique identification number

If a beneficial owner of a reporting company also holds ownership interest or exercises substantial control in other companies, they can create a FinCEN identifier (FinCEN ID) to avoid providing the same information in multiple BOI reports.

Since BOI reporting under the CTA is a new requirement, keeping up with all the rules and information that has to be submitted can be confusing, especially for organizations with limited experience in regulatory filing. To ensure full compliance with the CTA and avoid the associated fines and penalties, it's smart to delegate the BOI reporting workload to a professional service provider like Harbor Compliance. Doing so ensures that all your BOI details are up-to-date with FinCEN and allows you to focus on the core aspects of managing your trust or any other reporting company.

Engage With Harbor Compliance To Expedite Beneficial Ownership Information Reporting (BOIR)

Harbor Compliance's BOI Reporting Service is specifically designed to help organizations of all kinds and industries, including trusts, comply with CTA's reporting requirements. We streamline the reporting workload by safely collecting all your BOI information and using it to prepare and file an initial report on your behalf.

If any details of your beneficial owners change later on, you can rest assured that we will prepare and submit an updated report containing the most accurate information. Our service includes preparing and filing up to four initial, corrected, or updated reports in a single calendar year.

Benefits of Harbor Compliance BOI Reporting Service

Check out three key benefits of delegating BOI reporting to Harbor Compliance:

1. Streamlined reporting workload—From collecting BOI information and preparing the initial report to filing updated or corrected reports (if needed), we take control of every step to help you focus on your core responsibilities while adhering to the CTA.
2. Automated notifications—We send periodic alerts to remind you to check if your BOI report information is up-to-date. For example, if you notice a beneficial owner's provided identification document has expired, just send us the new one, and we'll prepare and file an updated report.
3. Records Manager—This convenient software stores all the information of every shareholder in your company. This includes their name, position, home address, and any documents they provide for verification. Having all this data in one place can facilitate and simplify your BOI reporting process.

How To Order Harbor Compliance's BOI Reporting Service

To order our BOI Reporting Service, simply visit the signup wizard and complete the following steps:

1. Choose an appropriate business type:
   1. Single business
   2. Multiple businesses
   3. A nonprofit which isn't 501(c) exempt
2. Provide relevant details about your company.
3. Submit the online form.

As soon as you complete the signup process, we'll start working on collecting your BOI information and filing your initial BOI report with FinCEN.

Additional Services by Harbor Compliance

Besides helping companies prepare and file BOI reports, Harbor Compliance helps organizations meet various other regulatory and state requirements. Refer to the table below for an overview of our most popular service categories:

Corporate Transparency Act and Trusts FAQs

In this section, you'll find answers to some commonly asked questions regarding the effect the Corporate Transparency Act has on trusts. You can also check our Information Center or FinCEN's FAQ page for more details.

Delegate Your BOI Reporting Requirement to Harbor Compliance

Any trust that constitutes a reporting company must report information on its beneficial owners to FinCEN and keep that information up to date at all times. While there are exceptions to the rule, it's best to eliminate guesswork with a reliable partner like Harbor Compliance.

Our BOI Reporting Service gives you peace of mind by helping you prepare and file initial and updated BOI reports. Get started with our service and save valuable hours that can be spent on running your organization.

Take a quick tour of our product with a free software demo to see how we can help you meet various state and regulatory requirements. As a bonus, you can get a free Harbor Compliance Score™ and obtain a convenient overview of your regulatory standing.