The Federal government is up in arms over dirty money.
It says that cartels, foreign dictators and fraudsters are using cash to buy residential real estate as a method of laundering money. An all-cash purchase avoids scrutiny from financial institutions and evades mandatory reporting.
Thus, your friendly government came up with the new Real Estate Report that must be filed with the Financial Crimes Enforcement Network, FinCEN, whenever certain residential real estate transactions occur.
Unfortunately, the new report will catch some folks off guard when they are doing normal estate and asset protection planning. Let’s look at the details to see how you could be impacted.
What Is the FinCEN Real Estate Report?
The Real Estate Report is a federal reporting requirement tied to certain residential real estate transfers. It is filed with the Financial Crimes Enforcement Network, or FinCEN, when specific criteria are met.
A transfer is reportable when:
- The real property is residential
- The transfer is non-financed (all-cash)
- The property is transferred to a certain type of entity or trust
- An exception does not apply
What Qualifies as Residential Real Property?
Residential real property is property located in the United States and includes:
- A house
- A condominium
- A duplex
- Land on which the transferee intends to build such a structure
- Shares in a cooperative housing corporation
If the transaction meets the reporting triggers, a Real Estate Report may be required.
Exemptions to the Real Estate Reporting Requirement
Some types of transfers are exempted from reporting. For estate planning and probate purposes, these include:
Transfers Resulting From Death
A transfer resulting from the death of an individual. This includes a transfer pursuant to:
- The terms of a will
- The terms of a trust
- A transfer on death deed
- Intestate succession
- Beneficiary designations
Funding Property Into a Trust
A transfer funding real property into a trust for no consideration, when made by an individual who is also a settler or grantor.
Court-Supervised Transfers
A transfer supervised by a court in the United States.
However, note that a transaction involving a person funding residential real property into an LLC or other entity is not exempt from the reporting requirement.
Who Is Responsible for Filing the FinCEN Report?
If a report must be filed, then who is responsible for filing it?
The law establishes a “reporting cascade,” basically a structured list of filers, starting with the title company who closed the transaction. The filer must save its records on the transaction for five years.
When Must the Real Estate Report Be Filed?
The Report must be filed on the later of:
- 30 days after closing, or
- The last day of the month following the closing month
Timely filing is critical to avoid penalties.
What Information Must Be Included in the Real Estate Report?
The Report must contain detailed information, including:
- The property being transferred
- Each legal entity or trust receiving the property
- Each beneficial owner of the legal entity or trust
- Each signing individual
- Each individual, entity, or trust transferring the property
- Any payments made for the property
What Is a Beneficial Owner?
A beneficial owner is an individual who:
- Exercises substantial control over the transferee entity, or
- Owns or controls at least 25 percent of the transferee entity’s ownership interests
Beneficial owner information includes:
- Name
- Date of birth
- Residential address
- Citizenship
- Taxpayer identification number
The report will be securely filed with FinCEN, which will maintain it in a secure database with strict limits on authorized access and use. The information will not be accessible to the general public.
Penalties for Failure to Comply
Failure to comply with the Real Estate Report requirements could result in civil and criminal penalties.
How the Real Estate Report Impacts Estate Planning
Now, let’s bring it home for estate planning.
- A report does not need to be filed if you transfer residential real property into your trust without consideration.
- A report does not need to be filed if you inherit residential real property or receive it via a Transfer on Death Deed.
- But a report may need to be filed if you transfer your residential real property into an LLC.
This is where routine estate planning and asset protection strategies can unexpectedly trigger federal reporting requirements.
There is a lot more to the rule. Additional information can be found at here.
Hammerle Morris Is Here to Help You Plan with Confidence
New reporting rules like the Real Estate Report can affect routine real estate and estate planning decisions, especially when transferring property to an LLC.
At Hammerle Morris Law Firm, we help clients navigate these requirements and create plans that protect their goals with clarity and confidence. Schedule a consultation to ensure your plan stays on track.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
