April 16, 2014

Living Trusts Generally Do Not Require A Separate Tax I.D. Number

This week’s question:

My husband and I are thinking about drawing up a living trust and related documents but are concerned about the need for a separate tax identification number for the trust. We would both be trustees of our family trust. Can you shed some light on this topic?

/s/Jenny J.
Almaden Valley

Dear Jenny—

You have raised a very good question, Jenny. You must be concerned about the possibility of your trust needing separate annual fiduciary income tax returns, state and federal, with accompanying cost and nuisance factors.

Let us assume for the sake of discussion that you do in fact have a “living trust”. This is also called a “revocable” trust. (A few months ago an article appeared in this column pointing out the differences between revocable and irrevocable trusts which can be seen on my website.) The revocable trust or living trust is also known as a “grantor” trust.

You can think of the “grantor” of the trust as the “creator” of the trust, you and your husband. Other terms often used are the “settlor” of the trust or “trustor”. Sorry about all of this redundancy and possible confusion, that’s just the way it is.

Internal Revenue Code rules and Treasury Regulations generally provide that so long as the trust is a “grantor trust” and all income is distributed to or for the benfit of the grantor(s), no federal tax i.d. number (TIN) is required while the grantor, or at least one of the two grantors, serves as Trustee or Co-Trustee. If that is the case, the trust uses the grantor’s personal social social security number of either grantor as its TIN.

Thus, under the Treasury Regulations, if you and your husband have a typical living trust, you would continue to file your usual state and federal tax returns each year and report all income under your own social security numbers. In a sense, the trust is treated as one person for income tax reporting purposes.

As long as you and your husband are both living and filing your normal tax returns, then usually there would be no requirement to file separate state and federal fiduciary tax returns for the trust.

You will want to contact your own attorney, however, if part or all of the trust becomes irrevocable, through death or other means, or if someone else becomes trustee of your trust. Other exceptions apply too, for example, if the trust conducts a business as a sole proprietor. In those situations, a visit with your own attorney or CPA is essential.

Thank you for emailing in your question, Jenny. I think our Almaden Times readers will appreciate it.

/s/Donald J. DeVries
Almaden Valley

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