Clients often ask whether they need a Federal Tax Identification Number (also known as an EIN) for their Revocable or Irrevocable Trust. Typically, this request is made after the beneficiaries or Trustee has been requested to provide a copy of the Trust or the Federal Tax Identification Number to third parties such as banks, lenders or creditors.
Generally speaking, a Federal Tax Identification Number is not needed for a Revocable (Living) Trust while the grantor is still living. Of course, there are exceptions to this general rule for certain Revocable Grantor Trusts if certain conditions exist (Grantor Trusts and the requirements therefor are excluded from this discussion). After the Grantor’s passing, if a Revocable Trust becomes Irrevocable as specified within the Trust, a Federal Tax Identification Number will be required and the Trust will now be considered a separate tax entity for federal tax purposes. During the period of time in which the trust is Revocable the Grantor’s Social Security number will be used for federal tax purposes relating to the income of the Trust. Typically, the Revocable Trust will also need to open bank accounts in the name of the Revocable Trust and the Grantor’s Social Security Number will also be used to open those accounts. During the life of the Grantor any income earned by or associated with the assets of the Revocable Trust including the bank account(s) held in the name of the Revocable Trust are claimed on the Grantor’s individual federal income tax return. A Revocable (Living) Trust will not need to file a separate federal income tax return in most situations during the lifetime of the Grantor.
After a grantor passes away, if the Revocable Trust becomes Irrevocable by operation of law, then the Trustee will need to apply to the IRS for a Federal Tax Identification Number for the Trust, which will be different from the Grantor’s Social Security Number which was previously used. The Trustee will obtain the Irrevocable Trust’s new Tax Identification Number directly from the IRS by using IRS Form SS-4. The reason that a separate Federal Tax Identification Number is not needed while the Grantor is living is because the Revocable Trust is just an extension of the individual Grantor and is subject to revocation or amendment, essentially for tax purposes, the income still belongs to the Grantor. However, when the Grantor passes, the Revocable Trust becomes Irrevocable and is treated as a separate entity for federal tax purposes. The Irrevocable Trust must then file a separate income tax return using the Tax Identification Number provided by the IRS.
Once the new Federal Tax Identification Number is obtained by the Trustee, that number must replace the Grantor’s Social Security number on all assets and/or accounts titled in the name of the Trust. In some instances, the financial institution(s) will require that a new account in the name of the Irrevocable Trust be set up using the new Tax Identification Number. The assets in the old account are then transferred into the new account. Less frequently, the financial institution may simply allow the existing account to remain open but will change Federal Tax Identification Number on the accounts in place of the Grantor’s Social Security number.
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