We have a Sole Proprietorship business as a Phase II CTR Exemption. We just learned that the sole proprietor himself died back in October, but the wife and son who are signers on the account have continued to run transactions through the account I assume until a new business can be formed. Legally I know a sole proprietorship ends when the owner dies. However, can the exemption remain until everything is transferred into the new business entity? If not, do we just start filing CTRs going forward, or do we have to backfile from October too? If we have to file CTRs I'm not sure who we file on since the sole proprietor is now dead.

You have a lot bigger problems than CTRs. The funds in the account now belong to the owner's estate and the ability for authorized signers to conduct transactions similarly ended when the owner died. The Bank could find itself liable to the estate is the executor files a claim for permitting unauthorized transfers and the wife and son were not entitled to funds that they spent.

As to the CTR Exemption, FinCEN Guidance Item C notes that a customer may lose qualification for exemption when a business is reorganized, but item E notes that no backfiling is needed if we discover during an annual review that a business no longer qualifies for an exemption.

https://www.fincen.gov/resources/st...termining-eligibility-exemption-currency

At this point I would not be permitting any additional transactions on this account until the executor of the estate provides you with a court document granting them the authority to put funds in an estate account. I'd also be talking with legal counsel about any potential liability the bank could have under state law.

Well, if the owner of a sole proprietorship dies, the sole proprietorship no longer exists, so I am not sure how the exemption can continue.

Also, one of the requirements of a Phase II exemption is the following:

Is incorporated or organized under the laws of the United States or a State or is registered as and eligible to do business in the United States. Since sole proprietorships are not incorporated or organized, it comes down to whether they are registered as a business in the United States. I have not seen the definition of the term "registered," but I would think it is a little more involved than filing for an "assumed name" at your county recorder's office. I believe in order to pull this off, you are going to have to have solid documentation regarding the legitimacy of the sole proprietorship. Some of this would most likely include detailed financial statements and annual tax returns.

I have never been a fan of exempting a DBA because of the risks.