The federal Corporate Transparency Act (CTA), effective January 1, 2024, whose constitutionality is currently being tested in the courts, follows in the footsteps of the IRC in that it creates a limited statutory exception to the beneficiary’s right to have the affairs of the trust kept in confidence, a right that is an incident of the beneficiary’s right to the trustee’s undivided loyalty. As the CTA is no friend of the trust beneficiary, trustees need to be ever mindful of their fiduciary duties in matters pertaining to CTA compliance. Consider by analogy the trustee investor who refrains from lawfully exploiting on behalf of the trust public information that he has come upon privately. He is negligent if he is ignorant of the difference between material inside information and public information; he violates the duty of loyalty if he appreciates the difference but foregoes exploiting the investment opportunity out of unwarranted concern for his personal liability.

Turning now to some elements of the CTA that implicate the fiduciary principle in the trust context. While a “nonstatutory” trusteeship is generally not a Reporting Company, personal information regarding certain equitable interests incident to the trusteeship may need to be reported to the Financial Crimes Enforcement Network (FinCEN), such as that of the holder of a general inter vivos power of appointment or a non-holder who is the sole permissible recipient (?) of trust income and principal, provided the holder or non-holder constructively enjoys via the entrustment a 24% or more ownership interest in a Reporting Company. Each such owner of an equitable interest is hereinafter referred to as “the beneficiary.” The Reporting Company may have to report to FinCEN the beneficiary’s full legal name, date of birth, home address, and a unique identifying number from a valid identification document, such as a passport or driver’s license, together with an image of the document. In most cases, the Reporting Company perforce will be relying on the trustee to disclose to it all this personal information. Consequently, the trustee well in advance owes the beneficiary a fiduciary duty to inform him and/or his counsel of all the personal information that the trustee intends to furnish the Reporting Company for CTA-compliance purposes; and if personal counsel is not involved, to see to it that the beneficiary, again, well in advance, has a full, subjective understanding of the facts and law that arguably support all this routine disclosure to the Treasury Department’s criminal-enforcement bureau.

In National Small Business United v. Yellen, 2024 WL 899372 (March 1, 2024), the U.S. District Court, Alabama, N. D., held that the CTA is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers. The Department of the Treasury was enjoined from enforcing the CTA against the plaintiffs. On March 11, 2024, the government filed a notice of appeal. In the meantime, the government intends to continue enforcing generally the CTA’s provisions, except against the plaintiffs, namely a one Isaac Winkles and namely the National Small Business Associations and its members as of March 1, 2024. Other constitutional challenges to the CTA in the works are: Boyle v. Yellen at al, Docket No. 2:24-cv-00081 (D. Me. Mar. 15, 2024) and Small Business Association of Michigan et al v. Yellen et al, Docket No. 1:24-cv-00314 (W.D. Mich. March 26, 2024). A trust beneficiary’s right in equity to information and confidentiality is taken up generally in §5.4.1.1 of Loring and Rounds: A Trustee’s Handbook (2024), which section is reproduced in the appendix immediately below.