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In residential real estate transactions, it is a common practice to convey property to an entity such as a trust, limited liability company, or corporation. This mechanism is (rightfully) seen by many as a way avoid personal liability or have proper asset protection for estate planning purposes. As of March 1, 2026, this simple process encounters new government oversight in certain circumstances.

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In August 2024, the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule (the “Final Rule”) to address persistent concerns related to money laundering and counter-terrorist measures in residential real estate throughout the country. According to FinCEN, certain transfers of residential real estate are considered at risk for illegal means of finance. In direct response to these concerns, the Final Rule requires certain non-financed transfers to entities be reported.

This alert summarizes the Final Rule and highlights what information must be shared to comply.

Reportable Transfers of Residential Real Property and Exemptions

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The Final Rule defines a reportable transfer as a non-financed transfer to an entity or trust where said entity or trust obtains an ownership interest in the subject “residential real property”.<a href="#_ftn1" id="_ftnref1">[1]</a> Non-financed transfers are defined as a transfer that does not involve an extension to credit to all transferees that is (i) secured by the subject residential real property and (ii) extended by a financial institution that is obliged to maintain an anti-money laundering program and report suspicious transactions.<a href="#_ftn2" id="_ftnref2">[2]</a>

Under the Final Rule, residential real property includes:

Real property containing a structure designed for the occupancy of one to four families;

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Land on which the transferee intends to build a structure designed for the occupancy of one to four families;

A unit designed for occupancy by one to four families within a structure; or

Shares in a cooperative housing corporation.<a href="#_ftn3" id="_ftnref3">[3]</a>

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The Final Rule also provides a list of exemptions which include lower-risk transfers that:

Are a result of a grant, transfer or revocation of easement;

Are a result of the death of an owner of the residential real property;

Are a result of a divorce or dissolution of marriage or civil union;

Are supervised by a court in the United States;

Are made to qualified intermediaries in a 1031/like-kind exchange;

Involve no reporting person (defined herein); and

Are made with no consideration made by an individual, either along or with the individual’s spouse, to a trust of which that individual, that individual’s spouse, or both of them, are the settlor(s) or grantor(s).<a href="#_ftn4" id="_ftnref4">[4]</a>

Seller-financed purchases, including but not limited to land contracts, are not exempt from reporting.<a href="#_ftn5" id="_ftnref5">[5]</a>

Transferee Entities or Trusts<a href="#_ftn6" id="_ftnref6">[6]</a>

After the initial analysis of whether the residential real property is reportable, the next determination is whether a transferee entity or transferee trust is being utilized. The Final Rule considers legal entities such as limited liability companies, corporations, partnerships, and trusts to be transferee entities and transferee trusts respectively.<a href="#_ftn7" id="_ftnref7">[7]</a> Exempt entities include many financial institutions and insurance companies.<a href="#_ftn8" id="_ftnref8">[8]</a>

Beneficial Owners<a href="#_ftn9" id="_ftnref9">[9]</a>

If a transferee entity or transferee trust exists in a reportable transfer, “beneficial owners” must also be determined. For a transferee entity, a beneficial owner is an individual that directly or indirectly exercises “substantial control”<a href="#_ftn10" id="_ftnref10">[10]</a> over the transferee entity or owns or controls at least 25 percent of the transferee entity’s ownership interests.

For a transferee trust, an individual is considered a beneficial owner if they are:

An individual who is a trustee or otherwise authorized to dispose of trust assets;

A beneficiary who is the sole recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or withdraw, substantially all the assets of the trust;

A grantor or settlor who can revoke or otherwise withdraw assets from the trust; or

A beneficial owner of an entity who holds one of the above positions of the trust.

Reporting Persons<a href="#_ftn11" id="_ftnref11">[11]</a>

The Final Rule further requires that one individual be responsible for reporting the residential real property transfer, when applicable. Typically, the individual will be a settlement agent, escrow agent, title insurance agent, or attorney. The Final Rule includes a “reporting cascade” which addresses every real estate professional who could conceivably be providing the reporting function(s).<a href="#_ftn12" id="_ftnref12">[12]</a> For example, a settlement agent whose name is provided on a settlement statement is the first individual who may be considered a reporting person.<a href="#_ftn13" id="_ftnref13">[13]</a> If no settlement agent prepares a settlement statement in a subject transaction, then the responsibility falls on the next individual in the “cascade” (here, a different real estate professional who prepared the settlement statement).

Once it is time for a reporting person to complete the documentation for the reportable transfer, the required information under the Final Rule includes:

The address of the residential real property with the full legal description

Transferee/Buyer information<ul><li>Full legal name (entity or trust)</li></ul>
<ul><li>Trade name or “doing business as” name (if any)</li></ul>
<ul><li>Address of principal place of business</li></ul>
<ul><li>Unique identifying number (e.g., IRS TIN or EIN)</li></ul>

Beneficial Owner Information (for both transferee entities and transferee trusts)<ul><li>Full name</li></ul>
<ul><li>Date of birth</li></ul>
<ul><li>Residential street address</li></ul>
<ul><li>Citizenship and</li></ul>

Transferor/Seller information<ul><li>Full legal name</li></ul>
<ul><li>Date of birth</li></ul>
<ul><li>Residential street address</li></ul>
<ul><li>Unique identifying number</li></ul>
<ul><li>If the transferor is a legal entity:<ul><li>Full legal name (entity or trust)</li></ul>
<ul><li>Trade name or “doing business as” name (if any)</li></ul>
<ul><li>Address of principal place of business</li></ul>
<ul><li>Unique identifying number</li></ul>
</li></ul>

Upon procuring all necessary information to file the report, the reporting person must file the reportable transfer with FinCEN by the later of either (i) the final day of the month following the month which the closing date occurred or (ii) 30 days after the closing date.<a href="#_ftn14" id="_ftnref14">[14]</a> Moreover, the reporting person is required to maintain a copy of any certification of filing.

Failure to file a report pursuant to the Final Rule’s requirements may carry penalties. Negligent violations of the Final Rule by a reporting person could result in a civil penalty of no more than $1,430 per violation. An additional civil penalty may be assessed in an amount up to $111,308 for a pattern of negligent activity. Willful violations of the Final Rule may result in penalties of not more than the greater amount of the transaction (not to exceed $286,184) or $71,545.<a href="#_ftn15" id="_ftnref15">[15]</a> Criminal willful violations could lead to imprisonment of not more than five years or a fine of $250,000, or both.<a href="#_ftn16" id="_ftnref16">[16]</a>

At Michael Best, we have extensive experience counseling real estate investors, developers, property owners, families, and other stakeholders in all facets of their residential real estate needs. Our commitment to service extends to the most novel considerations, including the Final Rule and its implementation. Title companies are now listing the Final Rule reports as a closing requirement. In real estate transactions, we seldom serve in the role of a reporting person under the above-referenced reporting “cascade.” Though we will counsel clients on the Final Rule, we will not act as the reporting person. Please contact us if you need support navigating these matters.

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<a href="#_ftnref1" id="_ftn1">[1]</a> 31 C.F.R. § 1031.320(b)(1).

<a href="#_ftnref2" id="_ftn2">[2]</a> 31 C.F.R. § 1031.321(n)(5).

<a href="#_ftnref3" id="_ftn3">[3]</a> 31 C.F.R. § 1031.320(b)(1)(i)-(iv).

<a href="#_ftnref4" id="_ftn4">[4]</a> 31 C.F.R. § 1031.320(b)(2)(i)-(viii).

<a href="#_ftnref5" id="_ftn5">[5]</a> See 31 C.F.R. § 1031.320(i).

<a href="#_ftnref6" id="_ftn6">[6]</a> See generally 31 C.F.R. § 1031.320(e).

<a href="#_ftnref7" id="_ftn7">[7]</a> 31 C.F.R. § 1031.320(n)(10)(i).

<a href="#_ftnref8" id="_ftn8">[8]</a> See generally 31 C.F.R. § 1031.320(n)(10)(ii).

<a href="#_ftnref9" id="_ftn9">[9]</a> See 31 C.F.R. § 1031.320(n)(1).

<a href="#_ftnref10" id="_ftn10">[10]</a> In this context, “substantial control” involves an individual who exercises control over an entity if they, among other things, (i) serve as a senior officer of the transferee entity; (ii) have authority over the appointment or removal of any senior officer or the board of directors (or similar body); direct, determine, or have substantial influence over important decisions made by the transferee entity;&nbsp; or (iv) has any other form of substantial control over the transferee entity. 31 C.F.R § 1010.380(d)(1).

<a href="#_ftnref11" id="_ftn11">[11]</a> See 31 C.F.R. § 1031.320(c).

<a href="#_ftnref12" id="_ftn12">[12]</a> See Fact Sheet: FinCEN Issues Final Rule to Increase Transparency in Residential Real Estate Transfers, FinCEN, <a href="https://www.fincen.gov/system/files/shared/RREFactSheet.pdf">https://www.fincen.gov/system/files/shared/RREFactSheet.pdf</a>.

<a href="#_ftnref13" id="_ftn13">[13]</a> 31 C.F.R. § 1031.320(c)(i).

<a href="#_ftnref14" id="_ftn14">[14]</a> 31 C.F.R. § 1031.320(k).

<a href="#_ftnref15" id="_ftn15">[15]</a> See 31 U.S.C. § 5321; 31 C.F.R. § 1010.821.

<a href="#_ftnref16" id="_ftn16">[16]</a> See 31 U.S.C. § 5322; see also Residential Real Estate Frequently Asked Questions, FinCEN, <a href="https://www.fincen.gov/rre-faqs#L_1">https://www.fincen.gov/rre-faqs#L_1</a>.

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New Anti-Money Laundering Reporting Rules for Residential Real Estate Transfers Now Effective March 1, 2026: What You Should Know

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