BOI support for companies transitioning to trust ownership

Key findings (concise, actionable summary for US business owners and LLC founders)1) Who is a “beneficial owner” when company ownership is held through a trust- FinCEN’s BOI definition: a beneficial owner is an individual who either (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the company’s ownership interests.

Beneficial owners must be natural persons (individuals), not trusts or entities.- Trust-specific guidance: individuals associated with a trust may be beneficial owners depending on facts and circumstances.

FinCEN identifies common indicators that an individual owns or controls ownership interests through a trust: the trustee (or any individual) has authority to dispose of trust assets; a beneficiary is the sole permissible recipient of income and principal or can demand distributions or withdraw substantially all trust assets; or a grantor/settlor has the right to revoke or withdraw trust assets. (These conditions are illustrative, not exhaustive.)- Trustee, beneficiaries, grantor/settlor can each be beneficial owners depending on whether they meet the substantial control or ≥25% ownership interest tests.2) Corporate trustees and special reporting rules- If a corporate trustee holds the company interest, reporting companies should determine whether individual owners of the corporate trustee indirectly own/control ≥25% of the reporting company (calculate multiplicatively).

Example: individual owns 60% of corporate trustee; trustee’s trust holds 50% of company → individual indirectly controls 30% → reportable.- A reporting company may, but is not required to, report the corporate trustee in lieu of individuals only if all three conditions are met: (a) the corporate trustee is an entity exempt from BOI reporting; (b) the individual beneficial owner owns/controls ≥25% of the reporting company only by virtue of ownership interests in the exempt corporate trustee; and (c) the individual beneficial owner does not exercise substantial control over the reporting company.

Key findings (concise, actionable summary for US business owners and LLC founders)1) Who is a “beneficial owner” when company ownership is held through a trust- FinCEN’s BOI definition: a beneficial owner is an individual who either (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the company’s ownership interests.

Beneficial owners must be natural persons (individuals), not trusts or entities.- Trust-specific guidance: individuals associated with a trust may be beneficial owners depending on facts and circumstances.

FinCEN identifies common indicators that an individual owns or controls ownership interests through a trust: the trustee (or any individual) has authority to dispose of trust assets; a beneficiary is the sole permissible recipient of income and principal or can demand distributions or withdraw substantially all trust assets; or a grantor/settlor has the right to revoke or withdraw trust assets. (These conditions are illustrative, not exhaustive.)- Trustee, beneficiaries, grantor/settlor can each be beneficial owners depending on whether they meet the substantial control or ≥25% ownership interest tests.2) Corporate trustees and special reporting rules- If a corporate trustee holds the company interest, reporting companies should determine whether individual owners of the corporate trustee indirectly own/control ≥25% of the reporting company (calculate multiplicatively).

Example: individual owns 60% of corporate trustee; trustee’s trust holds 50% of company → individual indirectly controls 30% → reportable.- A reporting company may, but is not required to, report the corporate trustee in lieu of individuals only if all three conditions are met: (a) the corporate trustee is an entity exempt from BOI reporting; (b) the individual beneficial owner owns/controls ≥25% of the reporting company only by virtue of ownership interests in the exempt corporate trustee; and (c) the individual beneficial owner does not exercise substantial control over the reporting company.

Reporting company definition and interaction with trusts- A reporting company is generally any corporation, LLC, or similar entity created by filing with a secretary of state (domestic) or registered to do business (foreign), unless an exemption applies. Most trusts are not reporting companies because they are typically not formed by a secretary of state filing; however, if an entity is a reporting company and is owned by a trust, that reporting company still must file BOI and identify individual beneficial owners.

Timing

initial and updated BOI reports- Initial reports: FinCEN’s guidance sets deadlines based on entity creation/registration dates. (Example in guidance: entities created or registered on or after January 1, 2025 must file their initial BOI within 30 calendar days after receiving actual or public notice that creation/registration is effective.)- Updated reports/changes: If an initial BOI report has been filed and a later change produces different beneficial owners (for example, litigation resolves or ownership changes), the reporting company must file an updated BOI report within 30 calendar days of the change or the resolution. Also, if a company previously qualified for an exemption but stops qualifying, it must file a BOI report within 30 calendar days of losing the exemption.5) Practical compliance steps and best practices (actionable checklist)- Treat a transfer of company ownership interests into a trust as a trigger for a beneficial ownership analysis — do not assume the trust shields BO reporting obligations.- Collect and preserve the trust instrument (trust agreement), amendments, trustee acceptance, beneficiary designation and distribution terms, grantor rights (e.g., revocability), and any agreements that allocate decision-making (e.g., trust protector powers).- Determine whether individuals meet FinCEN’s “substantial control” indicators (senior officers, authority to appoint/remove officers or directors, important decision-maker, or other forms of substantial control) or meet the ≥25% ownership threshold when counting indirect ownership through trusts or corporate trustees.- If a corporate trustee is involved, perform indirect ownership math to determine percentage ownership; evaluate whether corporate trustee meets exemption criteria and whether the corporate trustee exception to reporting individuals applies.- Maintain a documented analysis (who was considered, rationale, supporting trust clauses) to support the BOI filing and to respond to requests or audits.- Update BOI reports promptly: file updated reports within the 30-calendar-day window after any relevant change (trustee change, beneficiary change, grantor revocation, transfer of interests, or other circumstances that change beneficial owners).- Use FinCEN’s filing system (BSA E-Filing) when submitting initial and updated BOI reports; consider engaging qualified counsel or a compliance provider for complex trust structures.6) Exemptions and edge cases to review with counsel- Check whether the reporting company qualifies for one of the 23 statutory exemptions (e.g., certain large operating companies, many nonprofits, public companies). If a reporting company was previously exempt but a change causes it to stop qualifying, file within 30 calendar days of losing the exemption.- If ownership or control is disputed or subject to litigation, report all individuals exercising substantial control and all individuals who own or claim ≥25%; if later litigation resolution changes who are beneficial owners, update within 30 days of resolution.