Funding Your Revocable Trust:
Following the execution of your estate plan documents, the final step of the estate planning process is the orderly transfer of the client’s assets into his or her brand new revocable living trust. While Antonoplos & Associates’ “Guide To Retitling Assets Into Your Trust” has simplified the process of retitling assets into a trust, a number of clients have raised the question, “When Do I Need a Separate Tax Identification Number For My Trust”?
Imagine the scenario: you just left your estate planning attorney’s office and you are attempting to change the title on your bank account to your new trust. The teller at the bank or broker on the phone is insisting that you obtain a separate TIN for your trust. Your estate planning attorney never mentioned this part of the process. Your lawyer made the process sound simple. Is the teller or broker correct? In short most likely No. The long answer, as with most things in life, is a bit more complicated and depends on your individual situation and the type of trust.
The First Question: Whether or Not Your Trust is Revocable
If you trust is revocable, give the teller or your broker your social security number. Is it a joint trust between you and your spouse? Give them either of your social security numbers and your individual names.
The Second Question: What About Irrevocable Trusts?
This situation is a little more complex. If you are the Grantor of the trust – you initially funded your revocable trust and you receive any significant benefit from the trust – use your social security number. If someone else is the trustee of the trust, the answer is still the same. Often banks and brokerages will insist that having a separate trustee requires that you have a separate tax id number. Unfortunately, they are wrong. If the trust is revocable, use your social security number regardless of who is appointed the trustee of the trust. If the trust is irrevocable and you are the Grantor – you funded the trust and your receive some financial benefit from the trust, even if someone else is the trustee – use your social security number.
The Third Question: What if it is a Special Needs Trust?
A special needs trust doesn’t change the answer; you still use your own social security number.
The Fourth Question: What if the Special Needs Trust is for the Benefit of Your Child/Children?
Can you revoke or amend the trust? What happens if your child passes before you; does the corpus of the trust revert to you? In both cases, you most likely are still going to use your social security number and report any income you receive on your personal tax return.
The Fifth Question: So When Do You Need A New Tax Identification Number For Your Trust?
No Surprise at this point, the number of instances where a separate tax identification number is required when funding your revocable trust are nowhere near as numerous as your banker might have you believe. The most common instances are three-fold:
A) For Crummy Trusts or more commonly Life Insurance Trusts. Please note just because your trust owns a life insurance policy it doesn’t necessarily mean that you need to have a separate tax id number for the trust. However, if your trust is an Irrevocable Life Insurance Trust (ILIT) – it was specifically created to hold a life insurance policy – then it probably needs its own tax id number.
B) A Trust that became Irrevocable because the person who set it up has passed away. This applies if you are the trustee of a trust where the Grantor has passed away or you are the beneficiary of a trust where the Grantor has passed away. If the Grantor is the person who set up the trust and funded it, you need to obtain a separate tax id number for the trust. If the trust is a joint trust between married people and one spouse has passed away, you may need to obtain a tax id number for the irrevocable portion of the trust.
C) A Special Needs Trust that you have set up for the benefit of someone else. Specifically, when the corpus of the trust does not revert to you if the beneficiary passes away, you typically need a separate tax identification number. This is especially the case if you are not the trustee of the trust and are having a third party administer the trustee as a third party trustee. An example is a trust you set up for a friend with 3rd party corporate trustees, with instructions that when the friend passes away that the monies held in trust go to the benefit of another friend.
The Sixth Question: What’s the Difference between An EIN Number, TIN Number, and Social Security Number?
An EIN or Employer Identification Number is the number that the Internal Revenue Service issues to file taxes when you are funding your revocable trust. Commonly people use the term TIN which stands for Tax Identification Number, which is an umbrella term often used to refer to either a Social Security Number (the number individuals use to file their individual taxes) or an EIN (the number that entities and trustees use to file their taxes). Your Social Security Number is a number issued by the Social Security Administration, which the Internal Revenue Service uses to track an individual’s tax filings and payments.
The Seventh Question: What if I already obtained an EIN for my trust?
Not a problem. If you have obtained two numbers from the IRS when funding your revocable trust, there are forms to cancel a number and to inform the IRS that one was obtained in error.
The Eighth Question: So Why do bankers and brokers demand that I get a new EIN for my trust?
The short answer is that they are probably relying on a preprinted list of requirements, and the bank or brokerage, wanting to avoid confusion with the various options, defaults to requesting the EIN.
Additional resources provided by the author
Peter D. Antonoplos, Esq. is a partner in the Law Firm of Antonoplos & Associates. Mr. Antonoplos’ practice focuses on estate planning, real estate, probate and business & corporate law matters. Mr. Antonoplos is admitted to practice in the District of Columbia, New York State, and the State of Maryland. Mr. Antonoplos routinely lectures on real estate, estate planning, probate and business & corporate law issues in Washington, D.C. and New York. Mr. Antonoplos is a graduate of Yale University and Georgetown University. He lives in Washington, D.C. with his wife and children. He is an avid chess player and motorcycle enthusiast. He may be reached at 202-803-5676 or Peter@AntonLegal.com. For more information on the trusts, check out our blog.