The Oklahoma Bar Journal February 2024

When a trust owns an interest in an entity, a deeper analysis is required to determine who is the beneficial owner. Thankfully, the final rules give guidelines on deter mining this. The final rules specifi cally state that a trustee of a trust or other individual with the authority to remove assets is a beneficial owner. 24 Furthermore, a beneficiary of a trust will be considered a ben eficial owner if the beneficiary: (i) Is the sole permissible recipient of income and principal from the trust; or (ii) Has the right to demand a distribution of or with draw substantially all of the assets from the trust[.] 25 According to the final rules, a grantor or settlor of a trust will also be considered a beneficial owner if they “ha[ve] the right to revoke the trust or otherwise with draw assets of the trust[.]” 26 When assigning business interests in entities to a trust, it will be import ant to consider which individuals in the trust will now be considered beneficial owners of the entity who will need to be reported to FinCEN. Although this analysis might be simpler for a revocable trust, it could become a complicated analysis when an irrevocable trust owns an interest in a business entity. It will be crucial to review the trust document and the FinCEN final rules to determine who may meet the requirements of being a beneficial owner. Questions about beneficial own ership may also arise when a major life event occurs that shifts who is managing an interest in an entity or creates a change in ownership. Does the beneficial owner change if a person becomes incapacitated and their guardian or agent named

If you are advising estate planning clients who own a business entity or advising clients to create certain types of entities, it is important to determine whether their entity is considered a ‘reporting company’ under the CTA and required to make a report to FinCEN.

with the secretary of state to obtain a “doing business as” or other trade name could be subject to the rule’s reporting requirements. 19 In response to concerns, FinCEN reit erated that the “only relevant issue for the purposes of the CTA and the final rule is whether the filing ‘cre ates’ the entity.” 20 FinCEN went on to state that it may consider issuing further guidance in the future if nec essary. 21 If you are assisting clients with forming entities as part of your estate planning practice or strategies, it will now be important for you to consider whether you 1) need to cre ate an entity under the secretary of state and 2) if you do create an entity with the secretary of state, whether you have triggered the need to file a report with FinCEN. Furthermore, if you are assisting probate or trust administration clients where an asset of the estate or trust is a busi ness entity, you will need to consider if there is a change in beneficial ownership that triggers the need to make a new report. The rest of this article will take a deeper dive into these issues.

Beneficial Ownership After determining whether an entity is considered a reporting company under the CTA, one must next determine who is a beneficial owner of the reporting company so that you can gather the necessary information on each beneficial owner for the FinCEN report. The CTA defines a beneficial owner as someone who directly or indirectly “exercises substantial control over the entity” or owns at least 25% of the entity. 22 The final rules put out by FinCEN give four factors for determining if someone exercises substantial control over a reporting company: 1) the person “[s]erves as a senior officer of the reporting company;” 2) the person “[h]as authority over the appoint ment of any senior officer or a majority of the board of directors (or similar body);” 3) the person “[d]irects, determines, or has sub stantial influence over important decisions made by the reporting company;” and 4) the person“[h]as any other form of substantial con trol over the reporting company.” 23

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

FEBRUARY 2024 | 9

THE OKLAHOMA BAR JOURNAL