3 Things to Know About a Coming Wealth Planning Trap

What You Need to Know

The Corporate Transparency Act is supposed to take effect in 2024.
It will require foreign national investors to report on their U.S. holdings.
It could lead to big penalties for some and send others shopping for life insurance.

The federal Corporate Transparency Act could soon snap cash out of the vaults of wealthy, poorly advised foreign nationals with large investments in the United States.

Starting Jan. 1, 2024, the CTA will require U.S. companies to send reports about their real owners, or “underlying beneficial owners,” to the Internal Revenue Service. Companies that fail to file the reports will face fines of up to $500 per day.

Caroline Brooks, head of advanced markets at John Hancock, predicted in an email interview earlier this week that the CTA will help the IRS detect criminal money laundering, efforts to support terrorism — and ordinary efforts to avoid paying U.S. estate taxes.

“Today, there is massive underreporting of foreign estate tax due,” Brooks said. “In the past, the IRS had limited ability to determine what U.S. property was owned by foreign nationals or even to know when an underlying owner passed away.”

What It Means

Brooks, who has a law degree and the Chartered Life Underwriter professional designation, suggested that providing CTA compliance support could be a great opportunity for sophisticated life insurance and wealth advisors.

“A foreign national with U.S. estate tax exposure may look to U.S. life insurance to help with estate and wealth preservation and to provide liquidity to help cover their tax liability,” Brooks said.

The Background

The CTA was part of the National Defense Authorization Act of 2021, a giant, “must pass” defense spending package that was enacted Jan. 1, 2021.

A section starting on page 2,996 of a 4,517-page PDF file established the new beneficial ownership information reporting requirements.

The “BOI” reporting provision requires some types of corporations and limited liability companies to send reports about their ownership to the Federal Financial Crimes Enforcement Network (FinCEN), to discourage non-U.S. individuals and entities from using anonymous shell companies to launder money or break the law in other ways.

The CTA rules apply to people from outside the United States, not to U.S. citizens or U.S. permanent residents, Brooks said.