When creating a revocable living trust, clients often ask whether the trust needs its own tax identification number. For many Florida families, the answer is no while the person who created the trust is living. However, the answer commonly changes after the grantor dies or when the trust otherwise becomes a separate taxpayer.
The trust agreement, the grantor's retained powers, and the circumstances surrounding the trust must all be considered. For that reason, this article explains the general rule rather than providing a conclusion for every trust.
What Is an EIN?
An Employer Identification Number, commonly called an EIN, is a nine-digit federal taxpayer identification number. Despite its name, an EIN is not limited to a business with employees. The IRS also issues EINs to trusts, estates, and other entities for federal tax reporting purposes.
The IRS currently lists trusts among the entities that generally need an EIN, but it expressly recognizes an exception for certain grantor-owned revocable trusts. An EIN may be obtained directly from the IRS at no charge.
The Usual Rule While the Grantor Is Living
A conventional revocable living trust is generally treated as a grantor trust for federal income tax purposes while the grantor is alive and retains the authority to revoke the trust.
In that common arrangement, the trust is generally not treated as a separate income-tax-paying entity. The grantor typically uses the grantor's Social Security number as the trust's taxpayer identification number. Interest, dividends, and other taxable income generated by trust assets ordinarily remain reportable on the grantor's individual federal income tax return.
Consequently, signing a revocable living trust does not automatically require the immediate application for a separate EIN. It also does not, by itself, eliminate income taxes or cause the trust to file a separate income tax return.
There can be exceptions. Trusts involving multiple grantors, foreign persons, specialized tax provisions, or unusual retained powers may require different reporting. A financial institution may also request an EIN based on its internal procedures, even when an EIN is not otherwise required for federal tax purposes.
When Will a Revocable Trust Need a New EIN?
A Florida family organizes financial information related to a revocable living trust at home.
A separate EIN will commonly become necessary in the following situations:
- The grantor dies. A revocable trust will ordinarily become irrevocable at the grantor's death. The deceased grantor's Social Security number should not continue to be used for income earned by the trust after death.
- The trust becomes irrevocable during the grantor's lifetime. This may occur because of an amendment, a release of the power to revoke, or another event affecting the trust's status.
- The trust is no longer treated as owned by the grantor. The trust may then become a separate taxpayer for federal income tax purposes.
- The trust has employees or certain specialized tax obligations. An EIN may be required even if another tax-reporting exception might otherwise apply.
The IRS provides an online EIN application and Form SS-4, Application for Employer Identification Number. The online assistant can issue an EIN after the submitted information has been verified. To apply online visit: sa.www4.irs.gov
What Happens After the Grantor's Death?
After the grantor dies, the successor trustee should promptly consult the estate-planning attorney and tax professional. The trustee may need to:
- Confirm that the trust became irrevocable.
- Obtain a new EIN for the trust.
- Notify banks, investment companies, and other asset custodians.
- Separate pre-death income from post-death income.
- Determine whether a federal fiduciary income tax return is required.
- Maintain complete records of trust income, expenses, and distributions.
A fiduciary may use Form 1041, U.S. Income Tax Return for Estates and Trusts to report income, deductions, gains, losses, distributions, and applicable tax liability. Whether a return is required depends on the trust's income and circumstances.
The trust and the deceased grantor's probate estate are not the same taxpayer. If both entities exist, each may need its own EIN.
In an appropriate case, the trustee and the estate's executor may consider a Section 645 election. This election uses Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate and allows a qualifying revocable trust to be treated as part of the related estate for federal income tax purposes during the election period. The election is not appropriate in every administration and cannot be revoked after it is made.
Florida Trust Administration Responsibilities
Obtaining an EIN is only one part of post-death trust administration. Once a Florida revocable trust becomes irrevocable, the successor trustee may also have duties to notify qualified beneficiaries, provide trust information, protect trust property, maintain records, and account for the administration.
Florida law generally requires a trustee who learns that a formerly revocable trust has become irrevocable to provide specified information to qualified beneficiaries within 60 days.
Practical Takeaways for Florida Families
- A typical grantor-owned revocable living trust usually uses the grantor's Social Security number while the grantor is living.
- Not every trust needs an EIN immediately after signing.
- A separate EIN will commonly be needed after the grantor's death.
- A trust and a probate estate may each require a different EIN.
- The trustee should keep the IRS EIN confirmation with the permanent administration records.
- Tax reporting and Florida trust-administration duties should be reviewed promptly after a death or other change in the trust's status.
At Gold Legacy Law, PLLC, we help clients in Miami Lakes and surrounding South Florida communities create revocable living trusts and guide successor trustees through the administration process. Coordinating the legal and tax aspects early can help trustees understand their responsibilities and avoid preventable reporting problems. Call us today for assistance with your Trust.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship between you and Gold Legacy Law. For legal advice regarding your personal situation, please contact our office to schedule a consultation.
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