APRIL 16, 2012 VOLUME 19 NUMBER 15
Tax ID numbers for trusts. When we first wrote about this topic, we did not appreciate how interested our readers would be. We thought that the issue was sort of dry, actually, and that most people would have asked their lawyer or their accountant for direction. It has become one of the most enduringly popular topics at the Fleming & Curti, PLC, website.
Imagine our surprise. The questions just keep coming. We can’t and don’t try to answer them all individually — we are not here to give free legal advice based on incomplete information, and most of the questions leave out at least some of the detail we would need. But we do find your questions instructive for purposes of figuring out the level of interest — and confusion — out there.
Here are a few of the questions we have gotten (edited for space, or to focus the question on the area we want to answer). Please, please, please remember that we are not trying to give specific legal advice here — we only want to help you focus your questions for when you talk with your own lawyer, or when you find yourself arguing with the well-meaning but misinformed support person at a major mutual fund company.
The key to determining when a trust needs its own EIN (employer identification number — the correct term for a taxpayer identification number for a non-human entity) is whether or not the trust is a “grantor” trust. While your parents were both living the trust was probably revocable and for their joint benefit; it almost certainly could use one or the other parent’s Social Security Number as its TIN. With the death of your father, the question now is whether the trust (a) is still revocable and (b) contains money that was originally your mother’s.
For purposes of determining the trust’s revocability, we can ignore the fact that your mother may not be mentally able to revoke the trust. The test is whether she would have the legal authority to do so, were she competent to attempt it.
More importantly, if the trust consisted of your father’s property (and not joint or community property), then it may not be a grantor trust any longer. In that case it may need its own EIN.
Whether or not it needs to have its own EIN, it is permissible for you to get one. This is true because your mother is no longer the trustee. Many banks and brokerage houses think that the fact that she is not trustee makes a separate EIN mandatory; they are wrong. But there is no harm in getting one, and it might make it easier to deal with the financial industry. What the tax returns would look like in such a case is a separate question — one you probably ought to pose to the accountant who prepares the trust’s and your mother’s tax returns.
What name do you give the “new” trust created after the death of a spouse?
The most common scenario is this: husband and wife have either a joint revocable trust or reciprocal trusts. In either case, upon the death of the first spouse a separate trust is created for the benefit of the surviving spouse. This trust is irrevocable and contains assets that belonged originally to the now-deceased spouse. As we have described before, this new trust (it might be more accurate to call it a modification of the old trust, which is now irrevocable) needs its own EIN. But what is it called?
The trust document itself might give the answer. Mr. and Mrs. Jones’ trust might say something like “the share described herein shall be set aside into the Jones Family Trust Marital Sub-Trust” or “the Jones Family Decedent’s Trust.” If the document names the new (or sub-) trust, use that name. If not, we usually use language that makes clear — and helps us remember — what kind of trust it is. Perhaps “the Jones Family Trust — Decedent’s Share” is clear enough.
There is no particular magic to the language. Clarity is the key. There are no trust policemen waiting to arrest you for getting the name wrong, and sometimes it is easier to let the broker or banker win these arguments — even when they are wrong. But if you are trustee it IS important that you keep track of which funds belong to which sub-trust if there is more than one, and that you not commingle the money between trusts or, worse yet, with your own money.
Yes, that is what we would do. It likely will work — not so much because there is a clearly right answer, but because there is no easy way for the annuity company to double-check. Their form is wrong to assume that all trusts have an EIN, and you are not even permitted to get an EIN for your revocable trust when you are the trustee and the original owner of all its assets. We encourage you to put your Social Security Number in the xx-xxxxxxx format and see if it works. We have done that before and it has.
She certainly will when you die. Until then, the trust doesn’t really exist, so there’s nothing to apply for now.
This suggests a question not really asked: what happens when you die with a will creating a trust? The first part of the answer: we will need to probate your estate. If your intention was to avoid probate by creating a trust, putting it in your will does not accomplish that. We see much confusion about this point among our clients and audiences when we give public presentations. Sometimes they then say something like: “ah, but we took care of that problem — we named our son as POD beneficiary” (or, sometimes, as joint tenant with right of survivorship). Great — no probate. Also — no trust. If you want your son’s money to pass in trust AND to avoid probate, you will need to talk about creating a living trust, not a testamentary trust. But that’s a lecture for another day.
Those were fun questions, but we’re out of time and space for this week’s newsletter installment. But keep sending them in — your questions help us decide where to focus our future articles. Please remember, however, that we are not here to give specific legal advice — we look for questions that raise larger questions that help us explain legal concepts for a lay audience. We hope we have helped you understand exactly why you need a lawyer for your more specific legal question.
31 Responses
My mother passed away 13 years ago. She had a simple declaration of trust of she as the grantor. She left very little to inherit and we were unaware that we as the trustees needed to file a final tax return for her. We now find that she has several thousand dollars in unclaimed gas and oil rights. We are told we need a FIEN or EIN number to stake the claim. My question is: If we need to apply for a number will we be able to get one even though her death was 13 years ago? Also will there be a big problem because we did not file a final tax return? Thank you
Karen:
If neither your mother’s estate nor her trust had any income in the year after her death, you did not have to file an income tax return and did not need to get an EIN for either entity. The fact that the oil/gas producer is now requiring you to get an EIN is unrelated; it sounds like there might be some income to declare, and maybe even some for past years requiring returns to be filed. But that won’t make it any more difficult to get the EIN, and I predict that the IRS will waive any penalties (but not the interest) for late filing if the uncollected oil/gas royalties are small. You should be talking with an accountant to get the EIN and the filing straightened out.
Robert B. Fleming
Fleming & Curti, PLC
http://www.FlemingAndCurti.com
Thank you!
My Mother-in-Law passed away in January of this year. She had revocable living trust with herself as the grantor and trustee. When she passed, the trust became irrevocable. The trust names my husband and his sister as beneficiaries, but they are beneficiaries through sub-trusts which they are each the trustee for. From talking to the attorney that helped her set up the trust, we know we need an EIN for the main Irrevocable trust and for each sub-trust. When applying for an EIN online, would we enter her name as the “responsible party” because she is the original grantor?
Sarah:
“Responsible Party” in this case is the original grantor/trustor — in other words, your late mother.
I apologize for giving an incorrect answer earlier. On further review of the SS4 form’s instructions, I see that it calls for the original grantor’s name and SSN under that entry.
Robert Fleming
Fleming & Curti, PLC
Tucson, Arizona
a year later- hope this thread is still being read. I read above that the “responsible party” would not be the original grantor who created a revocable living trust, and has passed away, but would be the trustee. I am the successor trustee for my mother’s revocable trust, and she has passed away. I don’t understand why, at the end of the IRS EIN online application process, it has my name along with my SSN as the “Grantor”. Why would my name be used as the Grantor when getting an EIN for her trust? -thanks
Kathy:
Just a guess here, but I bet you put your name (and SSN) in the box marked “Responsible Party” (lines 7a and 7b on the printed SS4 form). That would make sense in English, but not in Taxese. Look at the instructions for the form; they say that in the case of trusts lines 7a and 7b should be the name and SSN of the grantor of the trust — in your case, probably your mother.
Does that help?
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
Hi Robert,
Your 2 answers above seem to conflict. We are struggling with the IRS EIN online application also. The “Responsible Party” is particularly vexing. At the end of the instructions for “Responsible Party” is this: “or trustor, if a trust.” the trustor is the grantor. In my case and Kathy’s case and Sarah’s case the trustor/grantor has passed away. So who is the “Responsible Party”. For Sarah, you say the trustee not the deceased grantor, for Kathy you say the deceased grantor. In our case we have a testamentary non-grantor trust and we are simply trying to fill out the IRS form. Thanks for any help/ clarification!
Bruce:
Mea culpa! You’re right — my two answers do conflict. The first (wrong) answer, I’m sorry to say, I provided without actually going to look at the form and read the instructions. My second answer is correct: the “Responsible Party” in the SS4 form should be the original trustor/grantor.
I’m going to edit my first answer so that it is no longer incorrect, but thank you for pointing out the inconsistency.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
My parents set up a Revocable Living trust, but both have passed away within 2 years of each other. I am not finding that an EIN was ever requested. I am designated as the successor trustee. Should I be requesting an EIN?
Vicki:
Probably, yes. Talk with a CPA or an attorney in your community.
Robert Fleming
Fleming & Curti, PLC
Tucson, Arizona
Similar situation as previous threads — living trust sets up Q-Tip trust for spouse. OK, responsible party is original (now deceased) grantor, but what is date of new trust? Original date of living trust? Date of grantor’s death? 6 Months after grantor’s death as document states spouse must survive for six months for sub-trust to come into existance? Some other date? Thanks for your help.
I have set up irrevocable trust for new grand daughter. My broker says I need an EIN. My lawyer says I can use my SSN. What is the story?
Bob:
Nice thing you’ve done, setting up a trust for your granddaughter. We approve (not that you were looking for our approval, of course).
We’re not sure about your question, as we would need additional information. With inadequate information, though, we suspect that your lawyer is right — it sounds like the trust was probably constructed as a “grantor” trust, and if that is the case then you can use your SSN rather than getting an EIN. Sometimes it’s hard to convince financial institutions of that fact, but your attorney can probably help.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
http://www.FlemingAndCurti.com
My father set up a revocable living trust and named my sister as trustee. Sister obtained an EIN for these revocable trusts before my father died despite not being required to do so (i.e., grantor trust). Now that my father has passed, can my sister use the trust’s existing EIN or does she need to obtain a new EIN now that the trust is a testamentary irrevocable trust. The trust has the same name.
Paul:
The existing EIN should work for the trust after your father’s death.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
I have the same EIN question. The form is not very clear, and the answers you have given thus far add to the confusion. I also contacted the Estate Distribution division of Schwab, which holds my deceased father’s accounts, and they tell me that the “Responsible Party” should be the new Trustee of my father’s now Irrevocable Trust. So what is the final, final right answer – is the Responsible Party the original grantor (my father, and his soc sec number), or the Trustee (and his soc sec number)? Thanks for you help.
Chris
We have received multiple questions about filling out the SS4 to secure an EIN for a trust after the death of the original settlor (or, if you prefer the language, trustor). The biggest problem most people face is determining who to list as the “responsible party” on line 7a (the Social Security number of the “responsible party” goes on line 7b).
Here is the link to the IRS’ instructions on filling out an SS4 form: http://www.irs.gov/pub/irs-pdf/iss4.pdf
One problem with those instructions: they create confusion about the answer to this precise question. First they define the responsible party for entities whose shares will be traded on public exchanges or are registered with the SEC; that definition, however, specifically includes trusts, and directs the use of the grantor’s TIN. But which trusts are traded on public exchanges, and wouldn’t the fact of being traded mean that there is no single grantor? It’s a puzzle.
The next definition is applied to all entities whose shares are not traded on public exchanges or listed with the SEC, and it requires listing the TIN of the controlling person or entity. It doesn’t use the term “trustee” anywhere, and doesn’t expressly apply to trusts, but the definition is broad enough to include trustees. So maybe that’s what they mean.
The problem is probably occasioned by the fact that the same form is constructed to be used for trusts, corporations, limited liability companies, partnerships, churches, Indian tribes, farmer’s cooperatives and all manner of other entities. It’s hard to identify the information they’re trying to collect for all those various types of entities.
I don’t know if this helps or complicates, but an earlier version of the SS4 form listed the choice in box 7a as “Name of principal officer, general partner, grantor, owner or trustor.” That pretty clearly indicated that they were then looking for the original grantor/trustor’s TIN. Maybe the change to “responsible party” (in, we think, 2010) and the definition in the instructions was intended to collect different information; both the old form and the current one also require the grantor’s SSN to be listed in 8a, so it does seem odd that they would make you list it twice.
Bottom line: we’re no longer certain which answer is better. For years we’ve been listing the grantor/settlor/trustor of the trust in 7a/7b, and we have not had SS4 applications rejected.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
Hi Robert:
SS-4 question regarding responsible party. We have a testamentary non-grantor trust situation. Granddad originally set up a grantor’s trust. He died appointing son trustee and secondary beneficiary, new EIN was set up at that time. Son has power of appointment over trust assets. 30 years later son dies appointing by Will his 2 lineal descendents as beneficiaries. Trying to get the new EIN’s for the lineal descendent’s trusts. Granddad was the original Grantor, but his SS# is no longer found in the online IRS database. Whose SS# should be used, Granddad’s via fax/mail or online using the deceased son’s SS# even though the son wasn’t the grantor/settletor/trustor etc..?
Thanks!
W:
Fun question. If the son’s power of appointment was a general power (could he appoint in favor of anyone he chose?) I think probably you would use his SS#. If not, I think granddad is still the grantor, and you use his SS# (and file by paper/fax). But I’d defer to your accountant or attorney if they disagreed. This one is a tough one to be sure.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
Hi,
Regarding a Trust tax return filed for the year-2013-it became irrevocable upon my father’s death leaving a Disclaimer and Survivor’s Trust- Trust A & B. I made the mistake of using an enrolled agent with no prior trust experience to file the return. He used my father’s ss# rather than the trust EIN’s and did not file for Survivor’s and Disclaimer Trust. I received K-1 for a distribution from (I’m told) taxable interest earned on an annuity. Question: given what I’ve described, is there anything of the 2013 return to amend, or will a complete new return be necessary, or something in between the two, such as plugging the numbers from the erroneous return into a Survivor’s and Disclaimer trust? Any comments would be greatly appreciated. It’s troubling, the idea of having to redo the process again.
Ron:
I’d take the return to an experienced CPA (the reality is that many enrolled agents, and not a few CPAs, will not have had experience with trust income tax returns) for review. I doubt that you can amend the return to fix the problem; by using your father’s SSN you have effectively filed a return for him, not for the trust. That may mean that you have to both amend your father’s return AND file a new trust return.
Good luck.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
A number is provided for IRS contact in the EIN Gov web site. The IRS contact that I spoke to indicated that the Trustor in the original trust is the Responsible Party once the Trustor is deceased and the trust becomes irrevocable. If you identify the trustee as the Responsible Party, you will be declaring that the Trustee has an irrevocable trust, and you will be creating
a taxpayer id for his own personal taxes. In addition, I was told that you need to give the deceased date for the date when trust was funded (not the date of the original trust), since the IRS is interested in the date the trust became irrevocable for trust taxes. If you provide the original date of the trust, you will be expected to create trust taxes starting at a much earlier date.
James:
That sounds correct to us, too. Wouldn’t it be helpful if the IRS form referred to “trustor” or “settlor” rather than “responsible party”, and “date of trustor’s death” instead of date of funding? Yes, but it doesn’t.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
Glad to see I am not the only one who finds the IRS form inadequate. But here is a slightly different question. If the original trust is already irrevocable [not one that transitioned from a revocable trust], does the IRS still want the “trustor” [who has never controlled the trust assets] as the “responsible party?” In order to get an EIN/TIN.
My sister recently deceased – she had no will, trust or an established estate, however, her employer (retirement funds of $4K) is requesting that I acquire an EIN number for the funds due her which her surviving siblings are requesting. In addition, she was a widow, had no children even though she has an appointed court conservator. Why do I need an EIN number?
Ethel:
I’m sorry to read about your sister. It’s not easy to tackle these kinds of issues when everything is already stressful.
It sounds like your sister’s employer thinks you need to create a probate estate to receive her retirement benefits. That may be true, but your state law may give you other options for a small estate. Talk with a lawyer in your state about what to do — it will end up being a good investment, as it should cut through what seems like a runaround. Good luck.
Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
Thank you for your time answering these questions! A large part of the problem regarding “responsible party” (line 7a on form SS-4) is that there are TWO SETS OF INSTRUCTIONS FROM THE IRS on the Internet. One set calls the “responsible party” the “trustor.” The other set says the “responsible party” is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual the disposition of its funds and assets. That sounds like a trustee to me. I think this broader concept of “responsible party” is the current one, but I can’t be certain. Neither of the sets of directions from the IRS is dated.