Does Lodmell & Lodmell, as Trust Protector, need to be reported as a beneficial owner of my reporting company?

The Corporate Transparency Act (CTA), effective January 1, 2024, requires certain entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A key purpose of the CTA is to identify individual beneficial owners—not entities—responsible for managing or controlling reporting companies. This distinction is critical when considering the role of Lodmell & Lodmell, P.C. as Trust Protector in the context of trusts owning reporting companies.

Trusts, Reporting Companies, and Beneficial Ownership

While trusts themselves are typically not considered reporting companies under the CTA, individuals associated with trusts may be subject to reporting requirements if they qualify as beneficial owners. For beneficial ownership classification, the CTA focuses on individuals with substantial control or ownership interest in the reporting company.

In cases where Lodmell & Lodmell, P.C. serves as Trust Protector, the question arises whether the firm should be classified as a beneficial owner.

Key Determination Factors under the CTA

To evaluate whether a Trust Protector qualifies as a beneficial owner, the following factors are considered:

• Substantial Control: Whether the Trust Protector has decision-making authority over the reporting company or its assets.
• Ability to Direct Distributions or Manage Assets: Whether the Trust Protector can directly control trust assets.
• Removal or Replacement Powers: Whether the Trust Protector’s authority to remove and replace Trustees extends to controlling the reporting company.
• Role of Individuals vs. Entities: Whether the Trust Protector is an individual or an entity, as the CTA aims to identify individual actors.

Several key factors make it clear that Lodmell & Lodmell, P.C. does not meet the CTA’s definition of a beneficial owner:

1. Authority and Role of the Trust Protector

   Lodmell & Lodmell, P.C. has the authority to remove and replace Trustees. However, this power does not inherently confer substantial control over the reporting company, because:

   • The Trustee is not responsible for managing the reporting company.
   • Control over the reporting company lies with the General Partners of the Limited Partnership, who are typically the clients themselves, not the Trustee or Trust Protector.
   • The Trust Protector does not have the power to:
     • Direct distributions of trust assets.
     • Dispose of trust assets.
     • Make significant decisions affecting the reporting company.

2. Scope of the CTA

   • The CTA seeks to identify individuals who exercise substantial control, not entities such as Lodmell & Lodmell, P.C.
   • The firm’s role as an entity aligns with the CTA’s focus on preventing entities from shielding the identity of actual individual owners or controllers.

In the case of Lodmell & Lodmell, P.C., the firm’s limited scope of authority, the independence of the General Partners managing the reporting company, and its status as an entity (not an individual) collectively demonstrate that it does not qualify as a beneficial owner under the CTA.

Evolving Interpretations

While the analysis supports the conclusion that Lodmell & Lodmell, P.C. is not a beneficial owner, it’s important to note that the CTA’s implementation and interpretation are still evolving.