Do Trusts Have Their Own Tax ID Numbers?
Understand the critical requirements for trust tax identification numbers. Learn when and how trusts obtain their unique federal ID for compliance.
A trust is a legal arrangement where a grantor transfers assets to a trustee, who manages them for a beneficiary. These arrangements are often used for estate planning, asset protection, and wealth management. Trusts typically require a unique identification number for financial and tax activities.
Understanding a Trust’s Tax ID
A trust’s tax identification number is an Employer Identification Number (EIN), issued by the Internal Revenue Service (IRS). This nine-digit number serves as a unique identifier for the trust for federal tax purposes, similar to an individual’s Social Security Number (SSN). The EIN allows the trust to engage in financial activities like opening bank accounts, holding assets, and filing required tax returns.
The EIN identifies the trust as a separate legal and taxable entity, distinct from the trustee’s personal SSN. This distinction is fundamental for tax reporting and financial administration.
When a Trust Requires an EIN
Whether a trust needs its own EIN depends on its type and specific circumstances. Trusts generally require an EIN when they become separate legal and taxable entities from the grantor.
Revocable trusts, often called living trusts, typically do not require an EIN while the grantor is alive and can change or revoke the trust. In these situations, the revocable trust is a “grantor trust” for federal income tax purposes. Income and deductions from the trust’s assets are reported on the grantor’s personal income tax return (Form 1040) using their SSN.
An EIN becomes necessary for a revocable trust upon the death of the grantor, or the last surviving grantor if multiple exist. At this point, the trust usually becomes irrevocable and a separate taxable entity. It can no longer use the deceased grantor’s SSN, requiring an EIN to file its own tax returns (Form 1041) and manage assets. Financial institutions often require an EIN for asset management after the grantor’s death.
Irrevocable trusts generally require their own EIN from inception. Unlike revocable trusts, an irrevocable trust is a separate legal entity from creation, with the grantor typically giving up control over transferred assets. This separation necessitates an EIN for tax reporting and financial activities.
The distinction between grantor trusts and non-grantor trusts also dictates the need for an EIN. A grantor trust is an arrangement where the grantor retains certain powers or control, causing the trust’s income to be taxable to the grantor directly, often using their SSN. A non-grantor trust, conversely, is a separate legal and taxable entity that must obtain its own EIN and file its own federal income tax return, Form 1041. Additionally, a trust might need an EIN if it employs individuals or operates a business, regardless of its revocable or irrevocable status.
Applying for a Trust’s EIN
Obtaining an EIN for a trust involves gathering specific information and following a clear application process through the IRS. The application is a free service.
Information Gathering/Preparation
Before applying for an EIN, the trustee or responsible party should gather all necessary details. This includes the full legal name of the trust, as it appears in the trust document. The name and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) of the trustee, who is the responsible party, are also required.
Additionally, the trust’s physical and mailing addresses, if different, must be provided. Applicants will need to specify the type of trust (e.g., irrevocable) and the reason for applying for the EIN, such as “created a trust.” The date the trust was established, also known as its funding date, is another piece of information the IRS will request.
Procedural Action
Once all necessary information is compiled, an EIN can be obtained using several methods, with the online application being the quickest option. The IRS website provides an online EIN application that guides users through the process. Many trusts can receive an EIN immediately upon successful online submission, provided it is completed during IRS business hours.
Alternatively, a trustee can apply for an EIN by faxing or mailing Form SS-4. When applying by fax, the EIN is typically received within four business days. Submitting the application by mail through Form SS-4 can take longer, with processing times generally ranging from four to six weeks. The completed Form SS-4 must be signed and dated before submission.