Can i use the same ein for an estate and a trust

Whether your trust requires its own EIN depends on the type of trust that you have. An EIN, also known as a federal tax ID number, is a nine-digit number that the Internal Revenue Service (“IRS”) assigns to identify an entity for tax reporting purposes. An EIN functions like a social security number.

Generally, revocable trusts do not need an EIN as they are grantor trusts and the trust’s income is reported on the tax return of the trust creator. If you have created a revocable trust, you may revoke the trust at any time and “regain” possession of the trust assets. Accordingly, a revocable trust is an extension of the grantor who created the trust. The grantor pays the income taxes generated by the revocable trust and uses the social security number of its grantor as its tax ID. Couples with a joint revocable trust both hold the power to revoke the trust, either person’s social security number can be used. A separate tax ID is necessary if they do not file taxes jointly.

A revocable trust becomes irrevocable at the grantor’s death. At that time, the trust requires an EIN, as the trust can no longer be associated with the deceased grantor’s social security number.  The trust must file its own taxes.

Some lifetime irrevocable trusts are also grantor trusts and therefore taxed to the grantor just like a revocable trust. While it is not required for these trusts to maintain a separate tax ID, it is sometimes a good idea to assign same. We usually assign a federal tax ID when we do Medicaid Asset Protection Trusts. If an irrevocable trust is not classified as a grantor trust, an EIN is required as the trust is considered a “separate entity” from the grantor.

If your trust requires an EIN, an application is submitted to the IRS as soon as possible. The application contains information from the grantor and the trust to answer a series of questions for the IRS. A trustee can either apply online, or mail/fax IRS Form SS-4. If a trustee applies online, the EIN is available in a matter of minutes. If the application is completed by fax or mail, it may take a few weeks to receive the EIN.

Discuss any questions relating to the need of a separate tax ID for your trust with an experienced estate planning attorney or tax advisor. Since the income tax rate for a trust is usually so much higher than that for an individual, the question of how your trust is taxed is crucial when considering trusts.  If you are wondering if a trust is right for you  – our estate planning attorneys are here to help.

Q: As successor trustee of a revocable living trust to be administered in California, do I request an EIN for a revocable living trust or an irrevocable trust after the death of the grantor? Would I request the 645 election? How do I know if it is a qualified revocable trust?

If you become successor trustee prior to the death of the grantor (due to incapacitation or disability), then you will not need to obtain an EIN (employer identification number) for the revocable living trust. The grantor will continue to report all of the income and expenses of the trust on his or her individual tax return. Once the grantor dies and the trust becomes irrevocable, you will need to complete the application for an EIN as soon as possible so you can properly report all post-death transactions under the trust EIN.

You may obtain an EIN by completing Form SS-4 online at irs.gov. Although you are not required to do so, you should make an election under IRC Sec. 645 prior to obtaining the EIN in order to request the appropriate yearend of the trust.

An election under IRC Sec. 645 treats a qualified revocable trust as part of the decedent’s estate for Federal income tax purposes. California follows the Federal election. This will generally simplify the administration of the estate and can provide several tax advantages, since the electing trust will follow the income tax rules for an estate rather than a trust for the first two years. The electing trust can select any fiscal year that falls within 12 months from the date of death. A trust that does not make the election must use a calendar year. For example, if the date of death is 9/10/2011, the latest fiscal yearend that you can select is 8/31/2012. You would not need to file fiduciary income tax returns until 12/15/2012. This gives you additional time to gather the necessary documents and make appropriate decisions. The electing trust also does not need to make estimated tax payments during the first two years.

If you will be unable to distribute the assets of the trust within two years of the decedent’s death, this election can result in a small administrative headache. The election is only valid for two years. At the end of the two years, the IRS will no longer treat the trust as part of the estate, and you will have to follow the income tax rules for trusts. The trust then would have to obtain a new EIN and revert to a calendar yearend. In the example above, if you did not distribute the trust assets by 8/31/2013, then you would have to file a short year trust return for the period from 9/1/2013 through 12/31/2013.

As to whether or not the revocable trust is qualified, most living trusts are. To be qualified, the grantor/decedent must be treated as the owner of the trust (IRC Sec. 676) because he or she had the power to revoke the trust prior to death.

Estate and trust rules can be very complicated, so make sure you are working with a professional who is experienced in this area.

Jennie Hoopes, CPA, a team member with Sweeney Kovar, LLP, in Danville, Calif.

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