Does a revocable trust need an Employer Identification Number (EIN)?

Exactly how an Employer Identification Number (EIN) needs a revocable trust depends on certain eventualities, which generally touch on the status of the trust and its management. The following are the scenarios whereby a revocable trust either needs to obtain an EIN or not.

 

1. The Grantor is Alive:

A revocable trust will not usually need to obtain its own EIN while it is in the life of the grantor. This is referred to as a "grantor trust," in which the trust is partially ignored for tax matters and the grantor is considered to be the owner of the trust. He uses his Social Security Number in all of the accounts and transactions that are related to the trust, and all the revenues created by the trust are reported on the personal tax return of the grantor. The grantor, however, is owner of the assets and can change or terminate the agreement, also a method for retaining the trust under the grantor's SSN.

 

2. Death of the Grantor:

At death of the grantor, a revocable trust becomes irrevocable and the trust is no longer a grantor trust. Normally at this time, the trust will need to apply for an EIN. It is because, for purposes of determining taxation, a trust is a legal entity, and its income that would be generated through the operationalisation of the trust must be reported through its separate tax identification number. The trustee automatically appointed on the death of the grantor shall utilize the EIN to execute any such tax matters and financial obligations of the trust in totality.

 

3. Exempt:

In a very rare case, a revocable trust may need an EIN during the life of the grantor if it is participating in the running of a business or if multiple trustees run the trust and they need the trust's activity to be kept away from the grantor's personal finances. This is less common and often depends on certain legal or financial advice.

 

Conclusion:

A revocable trust typically doesn't have its own EIN during the grantor's lifetime; it uses the grantor's Social Security Number. Upon the grantor's death or when an EIN is required for specific purposes, the trust must apply for an EIN to handle tax and financial transactions. Consulting a legal or tax specialist is advisable to ensure compliance with all legal requirements and proper trust administration. One Pacific Trust provides the best service for managing these complexities, offering expert guidance and support to ensure your trust is administered efficiently and in full compliance with the law.