Q. My wife and I recently acquired a rental property and are considering forming an LLC this year and exploring any other options, such as trusts. I heard that the Corporate Transparency Act went into effect on the first of the year and that there is required reporting of private beneficial ownership information. However, I’d prefer not to share my private information. What if we chose to put the property into a trust instead? Would this shield us from having to submit the beneficial ownership information to the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), per the newly enacted law? Thanks for your help!
A. The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, mandates that both newly established and existing corporations, limited liability companies (LLCs), and certain other entities must submit beneficial ownership information (BOI) to the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The intent of the CTA is to address illicit activities, such as money laundering and tax evasion, by capturing private information about the ownership of specific entities operating in or engaging with the US market.
A “beneficial owner” of a “reporting company” is any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company.
Beneficial ownership information must be reported here.
Once reported, the beneficial ownership information collected by FinCEN is available to certain government agencies and used for law enforcement, national security, and intelligence purposes, as well as financial institutions so they can fulfill certain reporting obligations, regulatory agencies that supervise financial institutions, and the Department of Treasury. It seems that you don’t want all of your information out there, accessible to all of these entities. What happens if the rental property is in a trust? Does it still need to be reported?
Choosing a Trust Instead of an LLC
If you and your wife form an LLC to own your rental property, the LLC has to file as a reporting company, and you and your wife would have to file as beneficial owners. If protecting your private information is very important to you, this may not be the best way to proceed.
What if the property was placed in a trust instead of an LLC? In general, trusts do not fall under the definition of a reporting company and therefore are NOT required to file a BOI report with FinCEN.
What Is the Best Type of Trust to Protect Your Rental Property?
The Living Trust Plus® is a special type of irrevocable asset protection trust that functions very similarly to a revocable living trust and maintains much of the flexibility of a revocable living trust but provides even better protection than an LLC because it protects your assets from probate PLUS lawsuits PLUS long-term care expenses while you’re alive by helping you be able to qualify for Veterans Aid and Attendance benefits after three years and Medicaid benefits after five years. An LLC does not protect your assets from probate or long-term care expenses, which is why many people choose the Living Trust Plus® to protect their rental property.
The Living Trust Plus® provides privacy from prying creditors or potential creditors, as an irrevocable trust is not a “reporting company” under the CTA (Corporate Transparency Act) and is therefore not required to report information regarding the true beneficial owners and others who have control over the trust to FinCEN.
In addition, for married couples owning rental property, one of the biggest advantages of the Living Trust Plus®, as opposed to an LLC, is that married couples are not required to be taxed as a partnership and therefore will not have to file an IRS Form 1065 partnership tax return and an IRS Form 8825 to report income, deductible expenses, and losses. Rather, a married couple can file their normal 1040 tax return (and the 1041 informational return) along with Schedule E, and on Schedule E the married couple can simply check a box to make a Qualified Joint Venture (QJV) election for each rental property.
For more details and advantages of the Living Trust Plus® for a rental property, please click here.
Can You Have a Living Trust Plus and an LLC?
Yes. If you already have your rental property in an LLC, you could create a Living Trust Plus and transfer ownership of the LLC into the trust, but you would still have to report yourself as the beneficial owner of the LLC to FinCen. For privacy, it would be better to transfer the rental real estate from the LLC to the Living Trust Plus and then dissolve the LLC.
Does the Living Trust Plus Offer Other benefits?
Absolutely! Another important aspect of a trust is that if something happens to you (if you become incapacitated or pass away), the trustee who you appoint steps in to manage the assets in the trust. You have peace of mind that there is a continuous management plan, and you can give very specific instructions for what should happen with the property.
Be sure to make an appointment to discuss your options!
If you are the beneficial owner of a reporting company, you need to file a BOI report with FinCEN — please read today’s Critter Corner for details.
The Farr Law Firm Helps Protect Our Clients’ Assets and Quality of Life
It is important to protect yourself, your quality of life, and your golden years with estate planning, long-term care planning, and financial planning. Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care financial advisor and can help clients in many areas of planning.
As always, if you or a loved one has not done Long-Term Care Planning, Estate Planning, Financial Planning, Retirement Planning, or Incapacity Planning (or had your planning documents reviewed in the past several years), please call us to make an appointment for an initial consultation:
Fairfax Elder Law Attorney: 703-691-1888
Fredericksburg Elder Law Attorney: 540-479-1435
Maryland Elder Law Attorney: 301-519-8041
DC Elder Law Attorney: 202-587-2797
About Evan H Farr, CELA, CAP
