A tax ID number is simply a means of identification for filing taxes. Individuals usually use their Social Security number, whereas business entities use an EIN. The acronym stands for employer identification number, implying use by small companies, large corporations, nonprofit organizations, and the like. However, an EIN is also necessary in other instances. If you have established a living trust, you need to report its income, deductions, and losses, but you may wonder, do I need an EIN to do this? The answer depends on the type of trust you set up.
An irrevocable trust is one in which assets are transferred from the estate into the trust. The grantor forfeits ownership and thus cannot make changes to the trust. Losing control of property may not sound appealing, but it comes with the benefits of protection from creditors and avoidance of certain taxes. This type requires its own trust EIN because it is a separate entity. The same applies to testamentary trusts, which go into effect upon death and are therefore irrevocable.
A revocable trust allows the grantor to maintain control over assets until incapacitation or death and to change the trust if desired. It comes with more taxes, however. If an irrevocable trust needs an EIN, does a revocable trust need a tax ID number, too? No, it is not a requirement, because the grantor can just use his or her Social Security number. Once the grantor dies, the trust becomes irrevocable, and the trustee will have to obtain an EIN.
Other Estate Plans
Guardianships and conservatorships involve trusts, as well, so they must also use an EIN for trust administration. The change of trustees does not require getting a new EIN for a trust. Multiple beneficiaries under one trust only needs one tax ID number, but a trust for each beneficiary requires a number for each trust.
Applying for an EIN for your trust does not need to be a complicated process. With the help of GovDocFiling, you can have it done quickly by filling out our easy online form.