FinCEN's Anti-Money Laundering Regulations for Residential Real Estate Transfers Rule: What Estate Planners Need to Know

Reprinted with permission from The Legal Intelligencer, November 20, 2025. © 2025 ALM Global, LLC. All rights reserved.

Just when you thought you survived the Corporate Transparency Act and last year’s constant state of flux as to whether the Financial Crimes Enforcement Network (FinCEN) would be enforcing the beneficial ownership reporting requirements for business entities, FinCEN’s new anti-money laundering regulations for residential real estate transfers rule (the RRE rule) mandating reporting for certain residential real estate transactions is set to go into effect on March 1, 2026. The RRE rule requires the reporting of nonfinanced real estate transactions involving business entities and trusts to FinCEN in an effort to prevent money laundering in the sale of real estate. For estate planning professionals, the RRE rule creates a new compliance burden that will require additional due diligence, increased documentation and new filings in certain real estate transactions.

Transactions Subject to the RRE Rule

The RRE rule applies to real estate transactions where the property is residential real property; the transfer is nonfinanced; the property is transferred to a legal entity or trust, and an exemption does not apply. Under the RRE rule, reportable residential real property includes single-family homes, townhouses, condominiums, and cooperatives, including condominiums and cooperatives in large buildings containing such units, as well as entire apartment buildings designed for occupancy by one to four families. Vacant or unimproved land on which the transferee intends to build a structure designed for occupancy by one to four families is also reportable residential real property.

A nonfinanced transfer is a transfer that does not involve an extension of credit to all transferees that is both secured by the transferred property, and extended by a financial institution subject to an anti-money laundering program and suspicious activity report obligations.

A “transferee legal entity” includes both foreign and domestic legal vehicles such as limited liability companies, corporations, partnerships and trusts. A “transferee trust” includes both domestic and foreign trusts. An individual transferee is not subject to the reporting requirements of the RRE rule.

The RRE rule provides an exemption for certain lower-risk transfers. Some common exemptions for estate planning include a transfer pursuant to the terms of a decedent’s will or trust as a result of an individual’s death, a transfer by operation of law, a transfer incident to divorce, and a transfer made for no consideration by an individual, either alone or with their spouse, to a trust of which that individual, their spouse, or both of them, are the settlor or grantor.

Estate planners should be alert as to whether otherwise routine estate planning transactions with real estate will now be subject to the RRE rule. For instance, an inter-family sale to a family owned limited liability company will now be subject to the reporting requirements of the RRE rule. Gifts to individuals or trusts will still not be subject to the reporting requirements.

Reporting Responsibility

The responsibility to report a transaction is based on the following “cascade system” of individuals:

• The closing or settlement agent on the closing or settlement statement, if one is involved;
• If no person above is involved, the person who prepares the closing or settlement statement;
• If no person above is involved, the person who files with the recordation office the deed or documents of conveyance;
• If no person above is involved, the person who underwrites an owner’s title insurance policy for the transferee with respect to the residential real property, such as a title insurance company;
• If no person above is involved, the person who disburses in any form, including from an escrow account, trust account, or lawyers’ trust account, the greatest amount of funds in connection with the residential real property transfer;
• If no person above is involved, the person who prepares the deed or, if no deed is involved, any other legal instrument that transfers ownership of the residential real property, including, with respect to shares in a cooperative housing corporation, the person who prepares the stock certificate.

Primary responsibility for reporting falls upon the individual at the top of the cascade, and the responsibility is imposed on the next person down the list only if the prior person is not involved in the transaction.

Notwithstanding the cascade, the individuals in the cascade may enter into a designation agreement among themselves to designate who among them will be responsible for any filings.

The individuals beneath the designated reporter in the cascade do not need to be parties to the designation agreement. The parties must have a separate designation agreement for each transaction and may not rely on a general agreement applicable to multiple transactions. The parties must retain the designation agreement for a period of five years.

A report must be filed with FinCEN by the later of the last day of the month following the month in which the date of closing occurred, or 30 calendar days after the date of closing.

Estate planners should be cautious as to where they fall within the reporting cascade. In certain jurisdictions, an attorney may serve as the settlement agent or may prepare the settlement statement, thereby having primary responsibility under the cascade system to report. In an interfamily transaction without a formal closing, the attorney may be responsible for recording the deed, or, at the very least, preparing the deed. Estate planning attorneys should be careful as to the role they play in such transactions as a role higher on the cascade will impose greater reporting requirements on the attorney. An estate planning attorney may want to consider, if possible, entering into a designation agreement identifying a different person or entity as the party responsible for completing the filings.

Reporting Requirements

When reporting to FinCEN, the individual responsible for reporting must identify the reporting person; the legal entity (transferee entity) or trust (transferee trust) receiving ownership of the property; the beneficial owners of the transferee entity or transferee trust; the individuals signing documents on behalf of the transferee entity or transferee trust; the transferor; the residential real property being transferred; and the total consideration and payment information. Each individual above must provide his or her name, address, date of birth, and taxpayer identification number.

Consistent with the rules for the Corporate Transparency Act, a beneficial owner of a transferee entity must, either directly or indirectly, exercise “substantial control” over the transferee entity, or own or control at least 25% of the transferee entity’s ownership interests. A beneficial owner of a transferee trust is any individual who is a trustee or otherwise has authority to dispose of transferee trust assets; is a beneficiary who is the sole permissible recipient of income and principal from the transferee trust or who has the right to demand a distribution of, or to withdraw, substantially all of the assets of the transferee trust; is a grantor or settlor of a revocable trust; or is the beneficial owner of an entity or trust that holds a position in the trust.

Failure to file a report with FinCEN could result in civil or criminal penalties. Negligent violations of the final rule could result in a civil penalty of not more than $1,394 for each violation, and an additional civil money penalty of up to $108,489 for a pattern of negligent activity. Willful violations could result in a term of imprisonment of not more than five years or a criminal fine of not more than $250,000, or both.

Estate planners should pay special attention to the new reporting requirements of the RRE rule as it may inadvertently impose reporting requirements on estate planners in routine estate planning transactions. With potentially harsh penalties, the new RRE rule are a potential trap for the unwary or uninformed whose participation inadvertently places them in the reporting cascade.

Justin H. Brown, a partner at Ballard Spahr, develops creative strategies for wealth transfer, asset protection, and business succession. He also counsels fiduciaries on their duties and obligations in connection with the administration of estates and trusts.

Brittany A. Yodis, an associate with the firm, focuses her practice on estate and gift tax planning and compliance, as well as trust administration, for high-net-worth private clients.

George M. Riter, Jr. is an associate in the private client services group at the firm. He focuses his practice on estate planning for high-net-worth individuals, along with estate and trust administration.