Can a Revocable trust has its own tax ID?
If yes, mechanically (or procedure-wise) how does the owner report that trust's income under his SS#? Does a form needs to be filed so that the IRS will know where to look for the reporting of that income?
Technically yes, though the IRS seems to prefer that it doesn't.
The trust is ignored for income tax purposes, and that includes its
EIN. The trust doesn't file a tax return, and it is not referred to in
the grantor's return, which includes all trust income and expenses.
See the instructions for form 1041 under "Grantor Trust" on pages 13 and 14.
In short, the default method is to file a form 1041 with the entity information only, with an attachment letter describing all income, the letter also being sent to the beneficiary if the beneficiary is not a trustee. Optional methods 1 and 2 require not filing a 1041, forwarding any 1099s received in the SSN of the beneficiary, issuing a nominee 1099 for any 1099 received by the trust in its own EIN, and sending (but not filing) the letter to the beneficiary if the beneficiary not a trustee.
Arthur L. Rubin, Brea, CA
Let me step back and ask a more basic question.
I am setting up a revocable trust (in Delaware) owning my home and financial accounts. I'll be the trustee until I died. [The trust is now an irrevocable trust.] Then my executor will step in as the trustee, sell my home; divide my estate, after expenses, among the beneficiaries. 2/3 of the net estate will stay in this trust. At that point, the trusteeship will be turned over to a corporate trustee in Delaware.
The trust will require its own EIN when it becomes irrevocable. So is it better/more efficient for the trust to get its EIN now? OR when it becomes irrevocable?
Typing this leads to another question. Is the trust only considered a Delaware trust after a Delaware trustee takes over? And during my lifetime, the trustee is considered to be in the state where the Trustee (grantor) resides; and therefore no filing requirement in Delaware?
It's normally done when it becomes irrevocable. It can be done now
but there is no good reason for it.
That's normally what happens. It's not burdensome most of the time.
Yes, again that's normally how it's done.
There are rules about which state's law governs trust administration
under different circumstances, and sometimes it's based on where the
trustee is and sometimes it's based on where trust property is. But
under the laws of most states, they follow the federal rule that a
grantor trust is treated as if it doesn't exist for tax purposes. So
until it becomes irrevocable, it likely doesn't matter where the
trustee is located, because the trust will be ignored.
As a practical matter, you are discussing two distinct trusts. One is
the revocable trust while you are alive. The other is the irrevocable
trust that is automatically created as a result of your death (that ends
up with the assets from the revocable trust). I don't have an
authoritative reference to back this up but I can't imagine the same Tax
ID number can be used for both trusts. It seems to me that getting an
EIN for the revocable trust (instead of just using your SSN) just makes
things gratuitously more complicated while you are still alive and
doesn't reduce the work for the trustees of the irrevocable trust at all.
The revocable and irrevocable trust may be the same trust. But
that's an excellent point. The IRS position, as stated in
Publication 1635, "EMPLOYER IDENTIFICATION NUMBER, Understanding Your
"You will need a new EIN if any of the following are true:
? A trust changes to an estate
? A living (inter vivos) trust changes to a testamentary trust
? The revocable trust changes to an irrevocable trust"