A Tax ID Number (TIN), also called an Employer Identification Number (EIN), is how the IRS tracks entities for tax reasons. Does your trust need one? This article explains when a trust requires a tax identification number and how to get it.
We’ll also explore the difference between revocable and irrevocable trusts, as that distinction is essential to determining your needs.
Do Revocable Living Trusts Need Tax ID Numbers?
While the grantor is alive, a revocable living trust typically doesn’t need its own tax ID number. Instead, you use the grantor’s Social Security number to report any income from the trust on the grantor’s personal tax return (Form 1040).
However, after the grantor dies, the trust becomes irrevocable and needs its own tax ID number. At that point, the trust is treated as a separate entity for tax purposes, and the trustee will need to get a tax ID to manage and distribute the assets.
Irrevocable Living Trusts and Tax ID Numbers
Irrevocable living trusts always need their own tax ID number. That’s because the law treats them as separate legal entities from the moment they’re created.
If you’re a trustee for an irrevocable living trust, it’s your responsibility to get a Tax ID number for it. You’ll need this to file the trust’s tax return – Form 1041 – each year.
Why the Difference Matters
Using the wrong tax ID for a trust can cause a lot of problems. You might file your taxes incorrectly, which could lead to penalties and interest. It can also delay the distribution of assets to beneficiaries. It creates complications for both the trustee and the people receiving money from the trust.
Because of this, it’s really important to know whether a trust is revocable or irrevocable.
How to get a tax ID for a trust
Getting a tax ID for your trust is generally pretty simple. You can do it online at the IRS website. You can also mail or fax IRS Form SS-4.
You’ll need to provide:
- The name of the trustee
- The type of trust
- The reason you’re applying
In Closing
Revocable and irrevocable trusts have different tax ID requirements, so it’s vital to know which rules apply to your trust.
To ensure you’re complying with all IRS regulations, consult with a qualified tax professional. As trustee, you’re responsible for managing the trust’s tax obligations, and expert guidance can help you avoid costly mistakes.