On September 30, 2022, the U.S.’s Financial Crimes Enforcement Network (FinCEN) issued its final rule on Beneficial Ownership Information Reporting Requirements, mandated by the Corporate Transparency Act (CTA). The rule aims to combat money laundering and terrorism by collecting and maintaining Beneficial Ownership Information (BOI) for U.S. businesses. It addresses the use of corporate structures, such as Limited Liability Companies (LLCs) by illicit actors and aligns with international efforts to combat unlawful activities. The rule outlines reporting requirements, including who must report and the violation consequences that are costly (like $500/day!).

The current U.S. framework for combating money laundering and terrorism has shortcomings, making it attractive for illicit actors to create hidden shell companies. The final rule requires new covered businesses to submit timely BOI reports to FinCEN within 30 days of establishment. Existing businesses have until January 1, 2025, to submit their initial reports. Accuracy and updated information are emphasized.

Reporting companies must include specific information in their initial reports, such as legal name, trade name, address, jurisdiction of formation, and EIN or TIN. They must also provide details of each beneficial owner and company applicant, including full names, dates of birth, addresses, unique identifying numbers, and images of identification documents. Corrected and updated information must be reported later.

The final rule defines a “beneficial owner” as an individual who exercises substantial control over the reporting company or who owns at least 25% of the company (ownership interest). Exceptions to the definition include minor children, nominees, intermediaries, custodians, agents, employees, individuals with future inheritance interests, and creditors. If no exceptions apply, beneficial owners can be identified based on substantial control and ownership interests. The rule provides indicators of substantial control and clarifies the definition.

Businesses must determine if they are considered reporting companies for purposes of the final FinCEN BOI rule. Domestic reporting companies include corporations, LLCs, or entities created by filing documents with a secretary of state or similar office. Foreign reporting companies are entities formed under foreign law and registered to do business in a state or tribal jurisdiction. The rule does not add exemptions beyond the 23 specified in the CTA.

Companies must also determine the extent of their reporting obligations and maintain a record of changes in company applicant information. The definition of a company applicant is limited to one or two persons. Additionally, existing companies are exempt from providing applicant information, but new companies must comply.

Complying with the final rule may be challenging, because it involves analyzing multiple individuals with ownership interests and substantial control. FinCEN has not imposed limits on the number of beneficial owners to be reported to create a comprehensive database.

Small businesses may benefit from legal counsel to navigate and comply with these measures.

One reason why estate planning is so appealing to me is that it helps to keep family assets in the family. Generally, if you’ve had a Last Will and Testament, Trust, and Powers of Attorney (POAs) for financial matters prepared, your loved ones can enjoy your gifts upon your passing and, equally important and relevant for this discussion, you and the fruits of your labor will be protected during your lifetime.

I used the term “generally” because sometimes even when these instruments are in place, caca happens, and I’ll get to those situations in a  minute. But let’s just consider the usual and oh so unfortunate situation…

Mom is elderly and has all of her marbles. Mom, unfortunately, catches COVID-19 and as a result, even after surviving it has “COVID brain.” Her mind wanders as she mops the kitchen floor and she slips and falls. During the fall, Mom hits her head on the kitchen counter before landing on the floor where she hits her had again. The blows to her head cause Mom to suffer a stroke.

Until the fall, Mom not only had all her marbles but was fully functional – paying all her bills and was the only one on her financial accounts and deed. Now, she’s relearning basic care, has no idea how to pay for anything, and depends on you and her healthcare providers. So you need to access her accounts to pay her bills. However, Mom has no estate planning in place – no financial POA and no Trust. You research “the Google” and even check out ChatGpt, which tells you the POA is what you need. So you phone an attorney, who just renewed their license, and when you told them that you needed a Power of Attorney and why, my colleague responded, “Sorry, your Mom lacks the required mental capacity to sign a POA.”

Now what?

In Illinois and other jurisdictions, what is needed is guardianship. But obtaining and sustaining guardianship can be arduous and costly and, for many seniors, permanent. This means the court-appointed guardian, who could be you or a financial institution or your or their attorney must go to court almost every time you Mom wants something that falls outside the court-approved budget, until she dies.

If Mom recovers from the stroke but needs help managing finances and getting around, she will likely be subject to guardianship for the rest of her life, which means her assets (or yours) will be going to pay court and attorneys’ fees for the rest of her life.

Once a disabled elderly person becomes subject to guardianship, they are usually in the court system permenantly.

However, like I stated earlier, estate planning instruments, like a Trust or a financial POA can prevent this from happening…most of the time.

When these instruments don’t work, it is often because relatives of the POA agent or Trustee see Mom’s health fading, whereby her morbidity is in sight along with her estate. And so the battle begins to change the POA or the Trust. And this battle more often than not ends up in guardianship court, costing the family or Mom or both tens of thousands of dollars.

Indeed, avoiding guardianship is one reason why having a solid estate plan, where fiduciaries are ot so easily challenged, is critical.

And yes, the Q&A I hate most:

Q: How long will my parent need to stay in guardianship.

A: Until they pass away.

Dead silence.

Most people incorrectly assume that if someone has a Last Will and Testament, then the Will captures everything the decedent owns and probate is not required.  If this were correct, the lives of probate lawyers would be a lot easier.

Often people pass away with a Will or a Trust not accounting for a legatee (someone who inherits under a Will) or beneficiary that might predecease them or not referencing a bank account here or there or thinking that they have “time” and will deal with the real property “later” but “later” never comes.

And the result is usually very unhappy executors, successor trustees, and beneficiaries.

When a loved one dies intestate, that means they died without having designated beneficiaries to all of their estate. And what is an estate for inheritance purposes?  An estate is everything the decedent owned outright, with no other person, at the time of their death.

Occasionally, minors inherit estates.

Sidebar: A minor is a person who has not reached adulthood or “age of majority.”

When a minor inherits from an intestate estate, guardianship or conservatorship is usually required. And to make matters even more complicated, jurisdictions and government agencies disagree on the precise definition of minor. For example, some states specifically define a minor as a person who is 16 years of age or older, other states, such as Illinois, specifically define a minor as someone who hasn’t reached age 18…but a state agency has determined that a minor is someone who hasn’t reached 21.

Next, let’s say the child’s parent died with a 401k that has no designated beneficiary. According to Illinois law, the child is an adult and would be an heir able to inherit the 401k, provided no other issues would impede their ability to do so.  And no guardianship would be needed.

Sidebar: I am not suggesting an 18 year-old inheriting $50,000 without guidance is a good thing. Oh contraire…

And, according to the most updated SECURE Act provisions, which governs inheritance of retirement assets, an 18-year-old child is a minor for purposes of inheritance.

Furthermore, since the SECURE Act is Federal Law, with respect to the inheritance and federal law supersedes state law, does that also mean that the 18-year-old child will need a guardian? State law says no, but the decedent would likely be rolling over in their grave I am sure. Because…this hasn’t been tested in the courts yet.

And if the decedent had a surviving spouse, what can that spouse do? Say, “No, surviving child, I know the state court says you can take the lump sum of $50,000 now, but please don’t.”

This scenario occurs more often than one imagines.

Oh how I do wish our government agencies talked with each other…

In the interim, the surviving spouse should probably make sure the 18-year-old has a very good driving instructor and lots of car insurance…

WE ALL KNOW that the American ideal of democracy is just that, an ideal:

People are citizens of this country, the United States of America, who the Founders never imagined would be granted citizenship; people in this country, regardless of the color of their skin,  are considered equivalent in Black Letter Law, at our very least attempt at justice and in the spirit of the law at our very best, which is something many founding persons never believed should be; and most citizens in this country are endowed with the authority to cast a ballot for whom they believe represents their interests, which is an authority that many of the Founders disagreed with bestowing upon the “common man,” let alone woman.

That American democratic ideal, however, did not really begin to take shape as a force to be reckoned with until the Voting Rights Act was passed; until the Honorable Justice Thurgood Marshall took his seat upon United States Supreme Court followed by the Honorable Justice Sandra Day O’Connor; and until Barack Hussein Obama was voted in as the 44^th President of the United States.

That American democratic ideal was most recently tested to its core by an attempted insurrection of the United States government, and like the administration that lifted the insurrection, the attempted insurrection should not be viewed with dismissive side-eyes.  It is telling that a large percentage of this country is sufficiently, miserable, un- or misinformed, and fearful that they would risk decapitation of the only body that ever kept most enemies from their doors and their shores.

That American democratic ideal is assuredly injured.  And, yes, this isn’t a cumbaya moment.  It isn’t a moment to breathe a sigh of relief.

It is a moment to inhale, hold it, feel the American heartbeat, hear the American lungs, and exhale, slowly, ever so slowly, and note the American body politic’s response, and get to work, to recover and move forward and strengthen that American ideal.

Still, we may not be breathing a sigh of relief, but that does not mean there is no relief being felt and seeking to be shared because…

That American ideal…

MY country ‘tis of thee…lift EVERY VOICE AND SING…from SEA to SHINING SEA…
let FREEDOM and JUSTICE for all…ring.