Does an Intentionally Defective Grantor Trust Need an EIN?

An Intentionally Defective Grantor Trust (IDGT) is an irrevocable trust used for estate planning. For estate and gift tax purposes, assets transferred to the trust are removed from the grantor’s estate. For income tax purposes, the trust is “defective,” meaning the grantor pays income taxes on the trust’s earnings. This structure allows trust assets to grow without being diminished by income taxes. Whether an IDGT needs its own Employer Identification Number (EIN) depends on specific circumstances that change over the trust’s life.

The General Rule Using the Grantor’s SSN

During the grantor’s lifetime, an IDGT is considered a “disregarded entity” for federal income tax purposes. The Internal Revenue Service (IRS) ignores the trust for income reporting, so all income, deductions, and credits are reported on the grantor’s personal tax return, Form 1040. Consequently, the trust uses the grantor’s Social Security Number (SSN) as its taxpayer identification number. The trustee provides the grantor’s SSN to financial institutions to ensure that Forms 1099 are issued in the grantor’s name. As long as the trust remains a grantor trust and no other triggers are met, a separate EIN is not required.

Circumstances Requiring an EIN

An IDGT must obtain an EIN in several specific situations. The most definitive event is the death of the grantor, which causes the trust to lose its grantor status and convert into a separate taxable entity. At this point, it must obtain an EIN to file its own tax returns.

Practical considerations also compel a trust to get an EIN during the grantor’s life. Many banks and brokerage firms require a trust to have its own EIN to open an account, which helps keep trust assets segregated from the grantor’s finances. A trustee might also voluntarily obtain an EIN to file an informational Form 1041, or if the trust operates a business or hires employees.

Obtaining an EIN for the Trust

Before applying for an EIN, the trustee must gather key information for IRS Form SS-4, “Application for Employer Identification Number.” This includes:

• The legal name of the trust as it appears in the trust document
• The name and taxpayer identification number (SSN or ITIN) of the trustee
• The trust’s mailing address
• The date the trust was created or funded

The most efficient method is the IRS’s online portal, which provides the EIN immediately upon completion. The person applying online must have their own taxpayer identification number to serve as the “responsible party.” Applications can also be submitted by fax or mail, but these methods are slower, with mail applications taking four to six weeks to be processed.

Tax Reporting Obligations After Obtaining an EIN

Once an IDGT has an EIN, its financial activities can no longer be reported using the grantor’s SSN. The trustee must file an annual income tax return for the trust using IRS Form 1041, which is due by April 15 for calendar-year trusts. On Form 1041, the trustee reports all trust income, such as interest and dividends, and any deductible expenses.

If the trust makes distributions to beneficiaries, it may take a deduction for that amount and must issue a Schedule K-1 to each beneficiary. This document informs beneficiaries of the income they must report on their personal tax returns. If the filing is made while the grantor is alive, it is an informational return where income items are passed to the grantor. After the grantor’s death, Form 1041 is used to calculate and pay the income tax owed by the trust on any income it retains.