Many business owners consult with accounting and tax professionals on how to best accomplish their financial goals and estate planning, but sometimes those decisions run afoul of what is allowable under the Disadvantaged Business Enterprise (DBE) rules.
The prior iteration of the DBE regulations specifically discussed the two ways a disadvantaged owner could be permitted to hold their ownership interest in a trust.
The first exception was when the beneficial owner of the trust, holding the ownership, is a disadvantaged individual who also acts as the trustee. In this scenario, if there was a sole beneficial owner of the trust who also serves as its trustee, the business could qualify for DBE certification (49 C.F.R. §26.69(d)(1)).
The second exception arose when the beneficial owner of the trust was disadvantaged and actively exercised effective control over the management, policymaking, and daily operational activities of the firm, rather than the trustee. That situation was more complex and required substantial evidence to prove.
However, the revamped and modernized DBE regulations that went into effect on May 9, 2024 makes no mention of whether ownership of a DBE may be held in a trust. Even the preamble to the new regulations (which many of the changes are discussed) makes no mention of a trust owning an interest in a DBE. Trusts are only mentioned in the new regulations when it comes to how they are counted for Personal Net Worth purposes and gifting.
While the USDOT has not issued any guidance specific as to trust, one could argue that the new 49 CFR § 26.63(b), which allows one level of ownership above an operating DBE company, could be the answer. However, the explanation and examples all refer to parent companies and make no mention of trusts, so this rule is not as clear as many owners would like.
We hope that the government will issue additional guidance soon to clarify this murky situation.
If you have questions about placing DBE assets in trust, please contact Danielle Dietrich, Esq. at ddietrich@potomaclaw.com or 412-449-9141.
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