Tax Identification Numbers for Trusts After Death of Spouse

MARCH 26, 2012 VOLUME 19 NUMBER 12
Here at Fleming & Curti, PLC, we keep tabs on what brings people to our website. We look at referring pages, at search terms and at a variety of other items. We are intrigued by what persistently tops the search-engine list. The most common search? It’s some variation of: “do I need a new tax ID number for my living trust?” (For those keeping score, the second-most-common question seems to be “can I leave my IRA to a living trust?“)

Why the enduring interest? Because the question is so much less complicated than people think it is. There is a surprising paucity of clear information about when you need to have a new tax ID number (an EIN, if you want to use the correct acronym). And much of the information out there is contradictory.

We have written about the question several times before. In 2009 we asked and answered the question: “Do you need a new tax ID number for your living trust?” Just last year we reviewed the question, along with some other reader questions, and provided a little more detail on when your trust needs an EIN. Since those two explanations the rules haven’t really changed — but your questions have gotten a little bit more sophisticated.

Several of those questions deal with the same basic scenario: what happens when a husband and wife have a joint trust, using one spouse’s Social Security number, and then that spouse dies? The answer will depend on what the trust provides.

First, a word about joint trusts for spouses: they are common in community property states (like Arizona), not as common in those states where community property principles do not apply. Remember, please, that we are Arizona lawyers, and so we write here about Arizona rules. Attorneys from other states are more than free to add their comments; we will post them as we receive them — but we are not vouching for the accuracy of their advice in states other than Arizona.

Let’s set up a scenario, drawn from our common experience: Husband and wife created a joint revocable trust, and their bank accounts, brokerage accounts, insurance — all of their assets, in fact — listed the husband’s Social Security number. They could do that because, as with a joint account outside of a trust, tax rules allow one owner’s identifying number to be used rather than having to use all owners’ numbers. But now the husband has died. What should the (surviving) wife do about the TIN (Taxpayer Identification Number)?

Before we answer, we need to know what happens to the trust on the death of the first spouse. Let’s assume, for a moment, that it remains in one trust, that the wife now has the power to amend or revoke it in its entirety, and that she is the sole trustee. In that case, the direction is easy: tell the bank, the brokerage house and the insurance company to change the name of the trustee from the couple to the wife, and to change the TIN to the wife’s Social Security number. How do you do that? Send them a death certificate and a letter instructing them to make the changes. Assume, incidentally, that they won’t — it will often take you two or three tries, several phone calls, and some wheedling to get the task done. But that’s what should happen.

What if the wife is not the sole trustee? Let’s say, for a moment, that the oldest daughter now becomes co-trustee with her mother, but that the trust remains revocable and amendable by the wife. In that situation, we have the same answer: switch to the wife’s Social Security number.

What if the wife has the power to revoke or amend the trust, but she is now incapacitated? The oldest daughter is the sole trustee, and isn’t sure what to tell the financial institutions. The answer is still the same: the trust is still revocable (even though there may be no practical way to revoke it if the only person with power to do so is incapacitated), and the wife’s Social Security number is the trust’s TIN (expect to have an argument with the financial institutions over this one). Is a bank trust department the successor trustee instead? Same answer — but with the ironic twist that the argument between trustee and financial institution will now occur between two branches of the same organization.

Sometimes a joint revocable trust becomes irrevocable on the death of one spouse. More commonly it splits into two (or sometimes three) portions, one (or two) of which are irrevocable. What happens then? The answer, as you might expect, is a little bit more complicated — and may not be the same in every case.

Generally speaking, an irrevocable trust that does not contain the assets originally belonging to the beneficiary is likely to need its own EIN. That may mean that one (sometimes two) of the trusts resulting from the death of one spouse needs a new EIN, and one just uses the surviving spouse’s Social Security number.

Let’s use a specific example: in our earlier scenario, after the death of the husband the joint revocable trust splits into a “Decedent’s” (sometimes “bypass”) share and a “Survivor’s” share. The Decedent’s Trust is irrevocable. Wife is the trustee, and she is entitled to all the income from the trust. She may even have the ability to distribute trust principal to herself, or to decide how the Trust is divided among the couple’s children at her death. But this trust is not  “grantor” trust — it gets taxed as a separate entity. Hence, it needs its own EIN, and it files its own tax returns.

Mechanically, the process of dividing the trust is a little more complicated than in our earlier scenario. An estate tax return may be required (although it may not). A division of trust assets needs to be completed (the assistance of a competent lawyer and a good accountant is essential here). The share to be assigned to the Decedent’s Trust needs to be identified, and then physically transferred into a new account — often titled something like “The Jones Family Trust — Decedent’s Trust” (yeah, we know — your name isn’t Jones. Stick with us anyway). And that new account needs to use the Decedent’s Trust’s new EIN.

Note that we said that the assets need to be transferred into the new account. Most financial institutions will insist on opening a new account, with a new account number, rather than simply changing the name on an existing account. But when the process is completed — however you and the financial institution get there — the Decedent’s Trust should be physically separated from the Survivor’s Trust, it will have its own EIN, and it will need to file tax returns. Note: it probably will not pay any tax as a separate entity — all its income will  probably be imputed to the surviving spouse.

Meanwhile, the remaining trust assets in our example will continue to use the wife’s Social Security number. It may not be crucial to change the name on that account to “The Jones Family Trust — Survivor’s Trust” (those Joneses — they end up will all the money anyway). If you long for clarity, we would certainly support a transfer of the Surivor’s Trust share into a new account, titled as part of that sub-trust, and bearing the wife’s Social Security number — even if it is not required.

Recall, please, that there are lots of variations on this basic scenario. Be careful about generalizing from this information to your precise circumstances. Our goal here is to give you some general notions about what needs to be done — we do not think of ourselves as a substitute for good, personalized legal advice. We think, in fact, that you should get some of that, because your situation might well be more complicated than you think it is. But we hope we’ve given you some idea of what your attorney will be asking you, and what he or she is likely to tell you.

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17 Responses

  1. Pat Trueblood

     /  March 26, 2012

    Please answer this question in a future email: If husband and wife have wills, each leaving everything to the other spouse, does the surviving spouse have to go to court to have it probated properly? (assume no trusts involved) Thanks.

  2. The classic lawyer’s answer: it depends. But it doesn’t depend on whether each spouse has signed a will — it depends instead on how the deceased spouse’s property is titled. It is common (but not universal) for spouses to own property as “joint tenants with right of survivorship”, or to have one another’s names listed as beneficiary. Those items shouldn’t need to be probated. If there are substantial assets in the deceased spouse’s sole name, the answer could be different. Talk to a lawyer in your community — one who is familiar with probate and estate planning.

  3. Art W

     /  May 7, 2012

    My mom just passed away had a revocable living trust that (from I assume) is now irrevocable. My sister and I are trustees. Can we just close the bank accounts in the name of the trust and split the funds ? or can we keep them open and switch from my moms SS number to a new EIN? Thanks.
    PS, all her assets were switched to the name of the trust prior to death and her will designates us as beneficiaries.

  4. We’re sorry to read about your mother’s death.

    It’s really hard to generalize about what you might need to do without complete information. It would be prudent for you and your sister to consult with an attorney in your area (it could be in your community, your sister’s OR your mother’s, by the way). I suspect that the cost will be slight, and there is a high likelihood that it will only require one consultation and not either a series of meetings or any court or other proceedings. You might also get some ideas about how to proceed from an accountant — and you are almost certainly going to need to file several tax returns (one for you mother and at least one for the trust, most likely), so you will probably be talking to an accountant anyway. If it seems that either the accountant or the lawyer is making things too difficult, do not hesitate to get a second opinion about what needs to be done.

    Good luck, and we hope things work smoothly for you.

  5. Art W

     /  May 15, 2012

    Thanks for the reply. I did meet with the attorney that set up the trust. He said to go and close the banks accounts in the name of the trust and open new with a new EIN in the name of the estate. I tried to just change the social security number, but bank had no clue( as lawyer said, they don’t understand things other than how to open an account) so I just closed them. And met with accountant, and there will be a final tax return in my moms name and a new one in the name of the estate. We have closed any accounts associated with her old SS number. We were fortunate as my mom had beneficiaries on everything or we accounts with JTWROS. Hope this all sounds like the way I should be doing it! Thanks.

  6. Ralph Fenesy

     /  June 12, 2012

    I have no living relatives. I’m 77. My IRA and 401K total just a bit over 200K. Everything else is in my living trust. Alot goes to charities and the rest to children of friends.
    Does it make any difference whether I put the IRA/401 into the trust? The entire estate,without those is about $1.2 million. The Ira is not a Roth but is pretty small so I could pay the taxes now but figure it won’t cost much more in taxes to leave it as is.
    Any suggestions? Thanks.

  7. Mr. Fenesy:

    As we keep saying in response to individual inquiries, we really can’t give specific legal advice based on comments like yours. You really need to ask your own lawyer. But we can give you a couple items to discuss with your lawyer:

    1. State inheritance/estate tax limits. While a $1.2 million estate will not be subject to federal estate tax (at least not this year — who knows what Congress will do next year?), the same might not be true in your state. Assuming that the amount you leave to charities exceeds $200,000 and the rest of your estate drops below $1 million, you probably won’t need to be concerned about federal estate taxes even if Congress fails to act before next year. But keep an eye on state taxes.

    2. In a general way, the very best thing to leave to charities is often your IRA or 401(k) account. They don’t have to pay the income tax when they cash it in and so the net effect is better for them than it would be for the children of your friends. You might consider a plan where charities are named as beneficiaries of your qualified plans and the rest of your estate flows according to the trust’s terms. That does mean you have to readjust your thinking periodically as you draw down the retirement accounts.

    3. In our experience, most clients who say they are worth $1.2 million turn out to be worth more like $1.5 million. There seems to be a natural tendency to understate the values of things, and to leave some out. Just watch out for that tendency, as it might make a difference (if Congress doesn’t act, anyway).

    4. You could make your trust beneficiary of your retirement accounts, but that is probably the least income-tax-efficient choice. On the other hand (especially if the total value of the retirement accounts is small), making the trust the beneficiary makes it easier to keep track of the relative distributions among beneficiaries.

    5. Don’t make the mistake of thinking you can set this in stone and stop working on it. You will need to revisit your plan every three-to-five years at this stage, just to make sure things are still on course.

    We hope that helps you focus your thoughts for your meeting with a local estate planning attorney. Good luck!

    Robert Fleming
    Fleming & Curti, PLC
    Tucson, Arizona

  8. Leslie Richards

     /  June 20, 2013

    My parents set up a Family Trust in 1998. When my Father passed away in 2001, the trust was split into a Survivor’s trust (with my Mother’s social security number) and a Decedent’s trust (with an EIN number). My Mother has recently passed away, and my siblings and I are in discussion about keeping the Living Trust intact for the time being because some of the investments are in accounts that have great interest rates. My brother believes that the Living Trust should now be using the same EIN number as the Decedent’s trust. (He has had the job of filing the yearly income tax returns for both Mom and the Decedent’s Trust) He’s basing his belief on information from a book on Living Trusts he purchased after our Father’s death. We have met with both a lawyer and the financial adviser at the investment company where the funds are, who stated that the Living Trust would now need its own EIN if we plan on keeping it intact. Just trying to clarify that we are on the right track with getting a separate EIN for Mom’s portion of the original trust.

  9. Leslie:

    It’s impossible to answer your question without looking at the trust document. Take it to a local lawyer and ask for direction. The financial adviser is the wrong person to answer the question — he might be perfectly capable of telling you whether an entity requires an EIN, but he is not likely to be good at the larger tax law questions.

    But your question contains what might reflect a misunderstanding I see more and more lately. You and your brother probably do not have the discretion to just decide to keep the trust going after your mother’s death. If, for example, the trust terms call for it to end and be distributed to the two of you, then you have to do that. You and he might then decide to create a partnership, or an LLC, or some other type of entity to keep the investments combined and any business operating — but that’s a separate question.

    Even that may be more than you need to do. If the investments are good and you want to keep them going, there is nothing in trust law that prevents you from simply distributing them half to you and half to your brother (assuming you are the only two beneficiaries and your shares are equal). If some assets can not be split, there is nothing that prevents you from agreeing that you will take this asset and he will take some other asset worth a similar amount of money — and you could agree on values for those purposes.

    Once again, though, all that makes assumptions about the terms of the trust. The assumptions might not be good, and each trust document can be different.

    I hope that helps rather than confusing the questions.

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

  10. Mike Y in California

     /  August 9, 2014

    Does a shared trust need to split into 2 trusts upon the death of one of the spouses if the only thing in the trust is community property (real estate)? Whats wrong with leaving it a one trust until the second spouse dies?
    Thank you.

  11. Mike:

    You indicate that you are in California, and I’ll assume that the spouses in question live there, too. You should talk with a California attorney about what has to be done on the death of either spouse. But I can give you one first suggestion: look at the trust document. What happens on the death of the first spouse to die probably depends on the language of the trust, and it should be possible to figure out what steps need to be taken. Good luck.

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

  12. Chris in Illinois

     /  January 17, 2016

    Illinois here. My girlfriend’s Mother had a revocable living trust that became irrevocable in 2010 when she died. The only thing in the trust was the house. My girlfriend, who lived with her, was trustee along with her Mother. She was also sole beneficiary. So she was to get the house. On the property deed, it names both her deceased Mother and herself as owners as trustees of the Trust. My girlfriend never transferred the property to just herself. She wants to keep it in the Trust. Is that even possible? Doesn’t she have to remove her Mother from the deed and property tax bill?

  13. Chris:

    It’s really hard to tell your girlfriend what to do at this distance. It should not be a complicated matter, though, to discuss it with an Illinois lawyer. Have her make an appointment, and be sure to take along a copy of the trust, a copy of the deed or tax notice showing how the property is titled, and any other documents she can gather about her mother’s assets. Please wish her good luck for us.

    Robert B. Fleming
    Fleming & Curti, PLC
    Tucson, Arizona
    http://www.FlemingAndCurti.com

  14. Robert

     /  February 12, 2016

    Good Article and thank you for the information.

    If a living trust is setup and the assets are to be split into a Survivor and Bypass trust upon one of our (husband/wife) deaths; and the wills have a catch all phrase that states something like: “I devise all the rest and residue of my estate, to the Trustee of our Trust” (and we are the trustee)

    1. If our IRA’s have each other as primary beneficiary and the trust as secondary beneficiary, I am assuming it only become part of the trust if we both were to die.
    2. In the process of splitting assets in the event of one or the others death. If the survivor decides to put real estate property(home) into the bypass trust does the bypass trust pay for the property taxes, insurance, maintenance or any updates (adding value) done on that property?

  15. Responding to Robert’s questions:

    1. Yes — beneficiary designations generally trump will or trust provisions. But there might be some state-to-state variation, and of course additional facts can always change the answer.

    2. It depends. Your second question is too complicated to answer simply. Talk it over with your lawyer and see if you want or need to make specific provisions in the trust document itself.

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

  16. Mary M

     /  January 13, 2017

    I have the exact scenario described above. My parents have a Revocable Living Trust (drawn up by the attorney I work for). I took over as successor trustee this summer because they couldn’t deal with it and my mother’s dementia is getting worse. At the time, the banks did not require a new EIN, although there were plenty of other hassles. My father died last month. Now one bank is saying they can’t/won’t change accounts from my father’s SSN to my mother’s SSN. At first they wanted to use mine & I told them they were nuts. Then a mysterious “back office person” said I need to obtain an EIN for the trust. I even showed them your page, which I printed. No dice. My boss is also saying I should obtain an EIN. I feel this unnecessarily complicates my life as successor trustee and I keep finding information like yours that says if a grantor is still alive and is still able to revoke under the instrument (which she is) a new EIN isn’t required. This is in Florida by the way. I’m annoyed with my boss regarding the trust, because it would have been just as easy, if not easier, for them to just have a will, add my sister and I as beneficiaries, and let me manage their bill paying using my DPOA. I’m a probate paralegal and I hate trusts.

  17. Mary:

    It’s dangerous for a lawyer to try to give an answer without every single piece of information, and sometimes there is more data available. You no doubt realize that from your own work. That said, however, it sounds to us like you are correct — your mother’s SSN should work fine, and the bank is asking you to do something you do not have to do.

    Keep arguing with the bank. Work up the chain of command. But don’t blame the existence of the trust — bank workers insisting on things that aren’t actually required is a common theme in modern banking. It may not feel like it to you right now, but you probably will have fewer problems with the trust in place than you would have without it.

    Good luck.

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