The CTA’s Impact Your Estate Plan

Under the Corporate Transparency Act (CTA), owners of certain business entities must file a report with the federal government, including details about their entity’s ownership. The CTA was enacted to combat money laundering, terrorist financing, tax fraud, and other illegal activities. If you have an entity (corporation, limited liability company, family limited partnership, etc.) as part of your existing estate plan, this is essential information you will need to know to ensure that you comply with the new law.

What is the Corporate Transparency Act?

The CTA is a law that requires business entities identified as reporting companies to disclose certain information about the company and its owners to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). Un der the CTA, a reporting company is defined as a corporation, limited liability company (LLC), or other similar entity (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe or (ii) formed under the laws of a foreign country and registered to do business in the United States. [1] The following information about the reporting company must be included in the report[2]:

1. company’s legal name and any trade names or doing business as (d/b/a) name

2.    street address of the principal place of business

3.    jurisdiction where the business was formed

4.    tax identification number

Additionally, the reporting company must provide the following information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company[3]:

1.    full legal name

2.    date of birth

3.    current address

4.    unique identification number from an acceptable identification document

For reporting companies created on or after January 1, 2024, the same information must be provided about the company's applicant, who is the person that files the creation documents for the reporting entity.

Note: Although a trust is not considered to be a reporting company under the CTA, if your trust owns an interest in a reporting company, such as an LLC, certain information about your trust may also have to be disclosed under the CTA because it may be deemed to be a beneficial owner.

Does the CTA impact you?

Many business regulations apply only to large businesses, but the CTA specifically targets smaller entities. If you own a small business, you may be subject to this act unless your business falls under one of the stated exemptions, which primarily apply to industries that are already heavily regulated and have their own reporting requirements. Your company may also be exempt from the reporting requirements if it employs more than 20 full-time employees, filed a return showing more than $5 million in gross receipts or sales, and has a physical office located within the United States. [4]

Complying with the requirements of the CTA is of the utmost importance if you own a business entity or have one as part of your estate plan. We routinely create entities that might qualify as reporting companies as part of our clients' estate plans. These include LLCs and family limited partnerships.

Limited Liability Companies

An LLC is a business structure that can own many types of accounts and property. These entities can be used to provide asset protection and to avoid probate.

Asset Protection

Because an LLC is a separate legal entity from its members, the LLC's creditors can typically recover only business debts from the LLC's money and property, not the member's personal accounts or property, also, if the proper formalities are in place, the member's personal creditors may not be able to reach the LLC's accounts and property to satisfy the member's individual debts.

Note: In some states, a single-member LLC does not enjoy the same protection from the member's personal creditors. The rationale of these laws is that your creditors should be able to recover your personal debts through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by the seizure of money and property owned by the LLC.

Probate Avoidance

Anything that the LLC owns—retitled into the name of the LLC during your lifetime, bought by the LLC, or transferred by operation of law at your death—will not go through the

public, costly, and time-consuming probate process. The probate process only transfers

accounts and property that you owned at your death. By using an LLC to own accounts and property, the LLC—not you—owns them. However, if you own the membership interest in your own name, the transfer of the membership interest at your death may still need to go through the probate process.

Family Limited Partnerships

A family limited partnership (FLP) is an entity owned by two or more family members, created to hold the accounts, properties, or businesses contributed by one or more family members. An FLP has at least one general partner who is responsible for managing the partnership, has unlimited liability, and is compensated by the partnership for their work under the partnership agreement. An FLP also has one or more limited partners who may vote on the partnership agreement but are not authorized to manage the partnership. The limited partners receive the partnership's income and profits but have no personal liability for its debts or obligations.

Asset Protection

This estate planning strategy is helpful because an FLP can help protect accounts, properties, and businesses held by the entity from your and your family's creditors, because you and your family do not own those items as individuals, but instead are owned by the entity. If a creditor obtains a judgment against you or your family for a claim not related to the FLP, it is more difficult for the creditor to access anything that the FLP owns to satisfy that claim.

Tax Planning

Also, because of its lack of control and restrictions on selling a partnership interest, the value

The value of a limited partnership interest that you give to a family member can be discounted, allowing you to maximize your annual gift tax exclusion and lifetime estate and gift tax exemptions.

What do you have to do to comply with the CTA?

To comply with the act, you should gather the required information for all reporting companies you own and all other beneficial owners. For entities created before January 1, 2024, submit the initial reports for each reporting company by January 1, 2025. For reporting companies created after January 1, 2024, the initial report is due within 30 days of the entity's creation. Please note, however, that a new rule has recently been proposed that would temporarily extend this deadline from 30 to 90 days for business entities formed during 2024. If implemented, this rule would allow additional time to understand and comply with the new requirements.

Having a business entity as part of your estate plan can be an excellent tool depending on your unique situation. If you currently have one of these entities or are considering forming one, please reach out to us to discuss next steps to ensure you fully comply with the CTA requirements.

If a loved one has recently passed and you are unsure what to do, please get in touch with TULLER LAW so we can help you restore stability and clarity to your life. Click here to schedule your meeting.

Footnotes

[1] 31 U.S.C. § 5336(a)(11)

[2] 31 C.F.R. § 1010.380(b)(1)(i)

[3] 31 U.S.C. § 5336(b)(2)(A)

[4] Id. § 5336(a)(11)(B)(xxi)

The Life and Legacy of Jimmy Buffett

Jimmy Buffett died on September 1, 2023, at age 76 after a diagnosis of Merkel cell carcinoma (skin cancer) four years earlier. He was a renowned singer-songwriter, film producer, businessman, novelist, and philanthropist.

Buffett released his first album, Down to Earth, in 1970. By 2023, his net worth was officially $1 billion,[1] including a $180 million stake in his company, Margaritaville Holdings LLC, which opened in 1985 and now brings in $1 to $2 billion annually.

Who Stands to Inherit Buffett's Estate?

Buffett had an early three-year marriage to Margie Washichek, which ended in 1972, and married Jane Slagsvol in 1977. He and Jane had three children: Savannah, Sarah, and Cameron. The children have all pursued careers in the music, film, and entertainment industries.

According to the New York Times, most of Buffett's money and property, including intellectual property and music rights, are held in a trust. [2] His wife, Jane, is the personal representative distributing the estate according to his will, with help from his business partner and Margaritaville Holdings LLC CEO, John L. Cohlan, if necessary. Because the trust provides the family with privacy, there are no specifics regarding which belongings will be passed to his wife, three children, two grandchildren, and two siblings. His estate is estimated to include the following[3]:

1.    Music royalties of $20 million annually

2.    A collection of houses and cars

3.    150 Margaritaville restaurants, casinos, cruises, and related business holdings

4.    A yacht and several planes

5.    Stock market investments, including shares in Berkshire Hathaway

6.    Watches and memorabilia

Buffett was receiving close to $200 million annually for his shares in Margaritaville Holdings LLC, and issues with his health and medical expenses did not affect his business or family legacy. He was still growing his wealth when he died.

Other Estate Planning Strategies Buffett Could Have Included Beyond His Will

Buffett cofounded the Save the Manatee Club in 1981 with former Florida governor Bob Graham, supporting rescue, rehabilitation, research, and education efforts in the Caribbean, South America, and West Africa. During his lifetime, Buffett gave away and helped raise millions of dollars for charities. For every concert ticket he sold, one dollar went to a charitable cause he believed in. [4]

Charitable Remainder Trusts

Given his charitable actions during his lifetime, Jimmy Buffett may have established a charitable remainder trust (CRT) to incorporate charitable giving into his estate plan. This type of trust could secure his family's future by providing a consistent income source to his beneficiaries while ultimately honoring his charitable nature by leaving the remainder to the charity of his choice.

Family Limited Partnerships or Family Limited Liability Company

Buffett likely considered his restaurants to be much more than commercial enterprises, and business continuity may have been preserved by creating a family limited partnership (FLP) or family limited liability company (LLC). Using one of these entities could have enabled him to pursue different strategies to retain control of his business shares while gradually transferring ownership to his wife and children. He could also have taken advantage of the annual gift tax exclusion by making tax-free gifts of the limited partnership interests, thereby mitigating potential future estate tax implications.

Grantor Retained Annuity Trusts

A grantor retained annuity trust (GRAT) may have been another trust structure that Buffett considered to pass down his business interests while retaining certain financial benefits during his lifetime. A GRAT is an irrevocable trust that would have allowed him to transfer his business interests or other assets with the potential for significant appreciation in value to the trust while still retaining an income stream for himself via annuity payments for a specified term. At the expiration of the term, his beneficiaries would receive any trust assets, with any excess appreciation above the § 7520 rate transferred free of estate and gift taxes.

Family Trusts

After years of using and enjoying the property he owned, Buffett could also have taken steps to ensure the smooth transfer of assets, such as his airplanes, to future generations for their own use and enjoyment by establishing a family trust. A family trust would have allowed him to designate how the planes should be used, maintained, and cared for after his death.

In a well-designed estate plan, the things someone owns, such as Buffett's planes, money, and other significant property, would be transferred outside probate, thereby maintaining the family's privacy. Additionally, the beneficiaries would not have to wait to wrap up lengthy or costly court proceedings before inheriting the assets Buffett intended for them.

Long-Term Care Planning and Advance Directives

Buffett had plenty of funds to pay for his long-term care needs privately. Still, he may have set aside specific financial resources to pay for care in advance if he had consulted a professional advisor or estate planning attorney earlier in his life. Based on comments made by his family in his final days, he may have also prepared advance directives so everyone understood his wishes for care and treatment at the end of his life. Consequently, he has made a peaceful exit from a terminal illness on his own terms.

While Buffett's life may be over, he leaves behind a substantial legacy. Keep an eye out for the posthumous release[5] on November 3, 2023, of the album Equal Strain on All Parts, featuring guest contributions from Paul McCartney, Emmylou Harris, Angelique Kidjo, and the Preservation Hall Jazz Band.

If a loved one has recently passed and you are unsure what to do, please get in touch with us so we can help you restore stability and clarity to your life.  Click here to schedule a meeting.

Footnotes

[1] Jessica Tucker, Here's How Much Jimmy Buffett's Estate Is Worth (and Who Stands to Inherit It), The Things (September 8, 2023), https://www.thethings.com/how-much-was-jimmy-buffett-worth/#.

[2] Julia Jacobs, Jimmy Buffett's Will Appoints His Wife as Executor of His Estate,N.Y. Times (October 13, 2023), https://www.nytimes.com/2023/10/13/arts/music/jimmy-buffett-will.html.

[3] Gabbi Shaw & Jordan Parker Erb, Jimmy Buffett Became a Millionaire after 5 Decades in the Music Industry. Here's How the Late Singer Made and Spent His Fortune, Insider (September 2, 2023), https://www.insider.com/jimmy-buffett-billionaire-makes-and-spends-his-money-2023-4.

[4] Id.

[5] Megan LaPierre, Jimmy Buffett's Estate Announces Posthumous Album Equal Strain on All Parts, Shares Three Songs, Exclaim (September 8, 2023), https://exclaim.ca/music/article/jimmy_buffetts_estate_announces_posthumous_album_equal_strain_on_all_parts_shares_three_songs.

Doesn’t Everything Go To My Spouse And Kids When I Die?

Many people think that if they die while they are married, everything they own automatically goes to their spouse or children. They’re actually thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as “intestate.” In that case, the specifics will vary depending on each state's law, so where you live when you die can significantly change the outcome for your family. However, the general rule is that your spouse will receive a share, and the rest will be divided among your children. Exactly how much a spouse will inherit depends on the state, though.

Now, it may seem like, “So far, so good.” Your spouse is getting an inheritance, so are the kids. But here are some examples of how the laws can fail many common family situations.

First off, if both parents of minor-aged children die intestate, then the children are left without a legal guardian. Kids don't automatically go to a godparent, even if that's what everyone knew the parents had intended. Instead, a court will appoint someone to be the children's guardian. In such situations, the judge seeks to act in the children’s best interests and gathers information on the parents, the children, and the family circumstances. But the decision is up to the court, and the judge may not make the decision that you, as a parent, would have made.

When it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children. But, that’s not necessarily the way many families are structured, and things can become legally complicated quickly.

According to Wealth Management, one analysis has 50 different types of family structures in American households. Almost 18% of Americans have been remarried, and–through adoption and stepfamilies–millions of children are living in blended families. The laws just haven't kept up, and absurd results can occur if you rely on intestacy as your estate plan. Stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit from you.

Say, for instance, a father has a will that allocates assets to his spouse and two children, then they adopt a third child. Then, the father dies in a car accident before he's able to revise his will. In some states, because the adopted child is not mentioned in the will, she may not be entitled to any inheritance.

If that isn't worrisome enough, consider that, in some states, the law provides that an adopted child still has rights to the biological parents' assets–and the biological parents are entitled to inherit a child's wealth. (Imagine if the adopted-as-an-infant Steve Jobs had died intestate, and his biological parents demanded a share of his estate!)

Of course, with a will or trust, you can control your estate and essentially eliminate the risk of these crazy results.

What if You and Your Spouse Are Separated?

State law decides what happens to your estate if you are separated from your spouse when you die. Much of the time, the court ignores your separation and just considers you still legally married.

Unless you have a prenuptial or postnuptial agreement, it is extremely difficult to disinherit your spouse. Again, even if a spouse is omitted from a will, state laws might choose to give a surviving husband or wife a share of the assets.

If you are separated from your spouse, and your divorce is pending, you should definitely talk with your divorce lawyer and an estate planning attorney about your options.

Creditors Win:

Intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate's assets are still vulnerable to creditors, lawsuits, and others who may claim entitlement to the property. These claims would take precedence over the statutory requirements for inheritance. In other words, the family may not receive the lion's share of the estate. They'd get the leftovers.

The best way to safeguard and pass along what you’ve worked so hard to build is to talk to a qualified estate planning attorney. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.