Do You Need a New Tax ID Number for Your Living Trust?

AUGUST 17, 2009  VOLUME 16, NUMBER 51

Imagine that you are trying to change the title on your bank account into the name of the living trust you and your spouse just set up. The nice lady at the bank is telling you that you need to get a new tax identification number for the trust. Could she be right? In a word, no.

Because we are lawyers, however, it is very hard for us to answer a complex question with a single word. So let us review some of the variations with you.

Is your trust revocable? This is the easiest variation. Give the bank (and your credit union, and your broker) your Social Security number. Joint trust between you and your spouse? No problem. Give them either Social Security number — just like before, when both of your names were on the account as individuals.

What if the trust is irrevocable? This is a little more confusing, but ultimately the answer is probably the same. If you receive any significant benefit from the trust, and your money went into it in the first place, you still use your Social Security number.

Is someone else the trustee of your trust? The answer is still the same — though many bank and brokerage officers will insist that this is what makes it mandatory for you to get a separate tax number. Simply put, they are wrong. If the trust is revocable use your Social Security number regardless of who the trustee might be. If it is irrevocable and someone else is the trustee, but you still receive benefits from the trust, use your Social Security number.

What if the trust is a “special needs” trust set up with your personal injury settlement or other funds? You still use your Social Security number. The “special needs” designation does not change the answer.

What about the “special needs” trust you set up with your money but for the benefit of your child? Now we’re getting interesting. Can you revoke the trust? What happens if your child dies before you do — does the money return to you? In either case, you probably use your Social Security number, and report the income on your tax return. Talk to your accountant and/or lawyer — don’t accept the banker’s (or broker’s) analysis of the legal and tax implications.

Is there ever a time when a new tax ID number is required for a trust? Yes, though the circumstances requiring a separate number are not as numerous as most bank officers, brokers and (for that matter) accountants think. These are not the only situations requiring a new number, but the three most common are:

  1. Life insurance trusts, or so-called “Crummey” trusts. Just because your trust owns life insurance it does not automatically follow that this special rule applies, but if it was set up precisely to own life insurance, and you are not the trustee, it likely needs its own number.
  2. A trust that becames irrevocable because of the death of the person setting the the trust up in the first place. This can happen when one spoue dies and a trust becomes partly irrevocable, too.
  3. A special needs trusts you set up (with your money) for the benefit of someone else, but which does not revert to you if the beneficiary dies before you — especially if you are not even the trustee.

When a separate number is required, what kind of number is it? The actual name for a tax identification number for a trust is “Employer Identification Number” or EIN. That is true even though the trust may not have any employees. The common acronym “TIN” (tax identification number) is not really an IRS or Social Security term at all — it is usually used as an umbrella term to encompass both EINs and Social Security numbers.

Why do bankers and stockbrokers insist that I need a new tax ID number if I do not? We’re puzzled, too. Our best answer: they are reading from a prepared list of choices, and they do not really understand the reasoning behind the various categories and approaches. We have had good experience talking with the bank employee on behalf of our clients, but sometimes it requires working up through the levels of authority.

Did you already get an EIN (Employer Identification Number) for your trust? Is that a problem? Probably not. You have two choices: change the tax identification number on all the accounts back to your Social Security number and file a final income tax return for the trust, or file annual tax returns under the trust’s EIN but without including any income or expenses — list those on your own tax return instead.

There is a lot of confusion in the financial industry about tax identification numbers and trusts. Feel free to print this out and take it to your banker.

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27 Responses

  1. Phil Catalano

     /  March 1, 2012

    Hi,

    Very concise, accurate article. I would suggest that you add a section about what name to associate with the new FEIN you apply for upon the termination of a revocable Trust due to the death of the surviving spouse. We have received contradictory advice on this matter, some people advised to rename the FEIN, others (particularly the investment houses) insist you CANNOT change the name, just get a new #.

  2. Richard Fisher

     /  March 20, 2012

    I have a personal living trust. It uses my social security number and does not have its own EIN number. I am getting some documents, such as an annuity distribution Claim Form following my mother’s death, that, for my trust information, require an EIN number in the format xx-xxxxxxx rather than the SS# format xxx-xx-xxxx. Do I force my SS# into the odd xx-xxxxxxx EIN format, and will that “fly”?
    Thanks,
    Richard

  3. Richard:

    We have used that technique, and successfully. It’s worth trying. Good luck.

    Fleming & Curti, PLC

  4. M Ames

     /  June 6, 2012

    Our lawyer told us that since we do not have TIN for our trust yet, we can just request our banks to make our Trust as our POD beneficiary for our savings/CD/checking accounts. Is this ok, or will there be any issues with this?

  5. M. Ames:

    Without knowing more about the kind of trust, the state you live in and the overall plan we can’t give you a “yes” or “no” answer. But if your lawyer (who presumably DOES know all those things) says it makes sense, we’d be unlikely to disagree.

    In our office we frequently use POD account titles to transfer bank accounts — especially smaller accounts — to a revocable living trust at death of the owner(s). So the advice you describe from your lawyer does not surprise us, or sound suspicious on its face.

  6. I had a question regarding the 1041 tax return for a client, my client insists that he can file the 1041 tax return under his SSN and doesn’t need an EIN. Can you please tell me if his point is valid is it even allowable.

    Thanks

  7. Gamba Mwenye: the client is correct — IF (and only if) the trust is a Grantor trust under federal tax law rules. The original article spelled out some of the ways a Grantor trust can be identified. It’s not always easy or intuitive, but it’s not impossible, either. Good luck.

    7/28/2013: almost exactly a year later, while preparing a follow-up newsletter, I looked at this Gamba Mwenye’s question again. I had not noticed that the client had said he thought he could file an IRS form 1041 using his own Social Security number. That would be wrong — he could file his own 1040 listing trust income if, as I suspected last year, the trust is really a grantor trust — but he would not / could not / should not file a fiduciary income tax return (a 1041). My mistake for agreeing with him without reading more closely.

    Robert B. Fleming
    Fleming & Curti, PLC

  8. Mark

     /  August 9, 2012

    The IRS and most CPA’s would disagree. If a trust is truly irrevocable the grantor has no stake in the assets and thus an EIN is required.

  9. Robert Fleming

     /  August 9, 2012

    Mark:

    I’m OK with CPAs disagreeing with me. That’s the point of our article: the misunderstanding about this issue is widespread, and shared by many professionals.

    The IRS, however, agrees with me. More precisely, I agree with them. Here’s the deal:

    If I create a trust, naming, say, my CPA as trustee, and I make it (as you say) “truly irrevocable,” it might still be a grantor trust. The easiest way to make it a grantor trust would be to require that the income be distributed to me — or even to give my trustee the power to give trust principal to me if she thinks I need it. If I do either of those things then the trust is a grantor trust, and it does not file a separate tax return.

    That’s a slightly different question from whether the trust needs its own EIN. While the grantor trust may not file a separate tax return, it can have its own EIN. That one is up to the trustee’s discretion.

    But I haven’t really disagreed with your premise. If this “truly irrevocable” trust must distribute all its income to me, then I DO have a stake in the assets. In fact, it is precisely my “stake in the assets” that makes it a grantor trust. So if I recast your sentence slightly, I can agree with it: “If a trust is truly irrevocable AND the grantor has no stake in the assets, THEN an EIN is required.”

    There are, of course, more esoteric ways I can retain “a stake in the assets” for this theoretical trust, but they are really beyond the scope of the original article. One favorite: when I establish the trust, I can retain the power to substitute property of equivalent value without requiring the trustee’s consent. So I put a rental home in the trust, I do not give the trustee any authority to distribute the rental income to me, and I receive no benefit from the trust — BUT I retain the right to buy the rental home back from the trust at its then fair market value. Even that slight “stake” in the trust’s asset makes it a grantor trust. No EIN is required.

    As I say, these rules are complicated and confusing, and even professionals often misapply them. I do want to add, however, that the first time I had them explained to me cogently and with statutory and regulatory citations it was by my CPA. She’s a gem.

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  10. ellen

     /  August 28, 2012

    Can an irrevocable living trust be attached by a judgment against one of the beneficiaries? Thanks.

  11. Ellen:

    We don’t have enough information to answer your question (and this is not an invitation to send us more information — we can not give specific legal advice in these comments). Generally speaking, and with a lot of room for state variation, an irrevocable trust you set up with your own money and which you receive benefits from probably will not be shielded from claims of your creditors. But a far better answer is: make an appointment with a lawyer in your community, share the details of the trust and the particular concerns you have, and find out what she has to say about your circumstance.

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  12. Skip

     /  November 6, 2012

    Both my parents have died. They had a living revocable trust. I am the trustee. Mom was the last to pass several years ago. I have found unclaimed property for the Hollaway Trust in Oklahoma. The state Treasurer is asking for “proof of trust tax ID #”. What should I send him?

  13. Sounds like you’ll need to get an EIN for the trust (if you haven’t already) and send them that number. For more direct information, you ought to (a) contact the State Treasurer’s office to get details, and/or (b) contact an Oklahoma attorney for help navigating the unclaimed property rules in Oklahoma. Good luck.

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  14. Teresa

     /  February 18, 2013

    Great article. I just ran into this situation when I went to the bank to retitle my bank accounts in the name of my revocable trust (as instructed by my lawyer), using my SSN. One bank did so, the other refused, saying I needed to get a EIN. Not being tax law savy, I could understand the logic of the EIN, since the trust is a separate entity. In researching this, I saw your article. My thinking: A disadvantage of the EIN is the need to file a separate tax return; an advantage for me is that dividend income would be tax free because it would not be combined with my employment income and would be below the minimum taxable amount. Is my thinking correct? If so, is there any other downside to obtaining a EIN even if it isn’t a real requirement?

  15. Teresa:

    If you are the trustee of your own revocable living trust, you should not get an EIN. Period. The bank that insists on it is wrong. Period.

    Now let’s suppose that you go ahead and get an EIN, even though you should not have. Does that mean you either save taxes or have to pay more in taxes? No. It doesn’t change the fact that your revocable living trust is a “grantor” trust, and it does not file a separate tax return. You report all the income on your own income tax return, regardless of what the 1099 from the bank says.

    Let’s take the next step, and assume that you ignore both of those pieces of advice and file a tax return for the grantor trust. Will you save taxes? No — you would then issue yourself a 1099 for the income erroneously reported to your trust (since it is not a separate tax entity). But don’t you get some deductions for the trust? No — it is a grantor trust, and it does not have a separate tax identity even if it does have an EIN.

    But suppose you go ahead and treat your trust as if it really were NOT a grantor trust — you get an EIN, you file a return, you claim the $100 exemption for the trust, you deduct any costs of administration, and the trust’s income disappears, right? Well, yes (if it’s a small amount of income, that is — at higher levels it actually pays more tax than you would individually). But there’s another name for that: tax fraud.

    There are NO “advantages” to getting an EIN for your revocable living trust, except that you get the banker off your back. Better to educate him or her. Ask your lawyer to explain it to the banker. You’ll be doing a favor for everyone else who goes to that bank, too.

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  16. Richard Salomone

     /  April 20, 2013

    In setting up an irrevocable trust for an elderly and mentally incometent individual where the funds in the trust are to be used for payment of assisted living expenses, would a separate EIN be required as the trustee is acting under durable power of attorney in setting up and funding the trust and the money is to be used solely for the elderly person’s support.

  17. Richard:

    You should talk with your lawyer about this. It sounds like the trust MIGHT be a “grantor” trust, in which case it does not need a separate EIN. But from your description it also COULD be a non-grantor trust, in which case an EIN is probably required. There could well be other issues to consider, as well. Get individualized legal advice

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  18. marites COronel

     /  July 23, 2013

    (^_^*)/ Hello

    I am finishing my living trust for my 2 minors. So while I’m alive. It’s a grantor’s trust therefore I do not need EIN or TIN. If ever I die, when is appropriate to get EIN for the trustee? I’m filing out my life Insurance change of beneficiaries. Under TRUST(S) Beneficiary: asking for Truts name (which is mine) trust date (date that is made) Trustee Name and TIN and Trust created By (is this me again?). Pls help.

    I’m a little buffled. Do I get TIN for my living trust?

  19. Marites:

    Simple rule: if your trust is revocable by you, it does not need an EIN while you are alive. When you die it will need one. The IRA custodian’s form calling for the beneficiary’s EIN simply can’t be completed for now — it will not have an EIN until you die. If you use your Social Security number, that should be correct for now.

    Robert B. Fleming
    Fleming & Curti, PLC
    Tucson, AZ

  20. Barry

     /  May 3, 2014

    I am confused. Im setting up a Family Trust and a Special needs Trust for my disabled 26 year old son. I dont need an EIN number for my Family trust. That will be the responsibility of my Trustee, my younger son, 24, when I pass on. As for my Special Needs Trust, do I need an EIN number now, when I prepare the SNT? Assets are not funded until I pass on, correct? So would I need an EIN number now, or should the new Trustee get this EIN Number after I pass on? When the accounts are distributed after I pass on, the accounts should have the SNT EIN number, to protect this from disqualifying my disabled son from SSI/SSDI? I the accounts are in his SS #, wont SS take away the SSI/SSDI, having more than 2K?

  21. Barry:

    Chat with the lawyer who drafted your son’s special needs trust. It might be a grantor trust while you are still alive (in which case any income it earns will be taxed on your return, and it will not require an EIN). It might not need an EIN because it earns no income and holds no assets — grantor trust or not. Or it might need an EIN.

    Once the trust is funded and is not a grantor trust, it will need to file a tax return — and it might show taxable income to your son. That does not mean he will lose his SSI just because income is reported on his tax return, but it does mean that you will need good continuing advice about how to treat the income and file the returns. Talk with your lawyer and accountant about exactly what you will need to do. And make sure your successor trustee knows what to do, too.

    I hope that helps.

    Robert B. Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  22. Mark Evans

     /  August 19, 2014

    Robert, I am the trustee for my sister’s trust, established by the Will of my Dad, who recently passed away. Had hoped to use her SSN for the trust, but a bank is now telling me to get an EIN.

  23. Mark: The bank is (probably) right. As always, it is difficult to be certain on the basis of such a short description of the facts, but I suspect that this trust does in fact need an EIN. It is extremely unlikely (without a lot of additional facts you have not suggested) that your sister’s SSN is the right number for the account.

    You should probably talk with an attorney and/or an accountant in your community about the reporting requirements, necessary tax filings and administration of your sister’s trust. Good luck.

    Robert B. Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  1. Tax Identification Numbers for Trusts After Death of Spouse | Elder Law Issues — Fleming & Curti, PLC
  2. EINs for Trusts: The Questions Just Keep Pouring In | Elder Law Issues — Fleming & Curti, PLC
  3. Tax Issues for Trusts — Simplified | Elder Law Issues — Fleming & Curti, PLC
  4. Tax Issues for Trusts – Simplified | Chalgian & Tripp Law Offices

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