Does My Irrevocable Trust Need a Tax ID Number?

Alexis Woodward, CFP®


If you’ve recently taken on the responsibility of managing an irrevocable trust, you may be wondering if it requires its own federal Tax ID number. You’re not alone in this question! In this blog article, we'll explore what a trust Tax ID and EIN number is and answer the question - does your trust need one? The type of trust matters! Irrevocable trusts do need a Tax ID Number. We will also dive into how revocable trusts differ, how to update beneficiaries with your EIN Number and what business owners should do with their EIN numbers.

Business man looking at documents in his office trying to determine if his Trust needs a Tax ID Number


What is a Tax ID Number vs. an EIN Number?

A Tax ID Number, also known as an Employer Identification Number (EIN), is a nine-digit number assigned by the Internal Revenue Service (IRS) department. It is used to identify businesses and other entities for tax purposes. A Tax ID Number and an EIN number are the same.

If you have a trust, you may need to obtain a Tax ID Number for the trust in order to file its taxes depending on the type of trust document. You can apply for an EIN online, by fax, or by mail.


Does my Irrevocable Trust need a Tax ID Number?

Any irrevocable trust is a separate legal entity from its creator for tax purposes, so it must have a separate tax ID and file its own federal income tax return. When you create an irrevocable trust, you will need to create a tax ID (EIN) number for the trust. Once you have obtained the EIN for your irrevocable trust, you will need to provide it to your bank or other financial institutions when opening accounts in the name of the trust.


EIN Number Creation Process for an Irrevocable Trust

The process for obtaining an EIN number for your irrevocable trust is relatively simple. You will need to have the following information on hand:

- The name of the trust

- The date the trust was created

- The trustee(s) of the trust

- The address of the trust


With this information, you can either apply for an EIN online through the IRS website. You can quickly do this by going to the IRS website and filling out the EIN application to create an EIN number here at https://www.irs-taxid-numbers.com/trust/

Once you have obtained your EIN for your irrevocable trust, be sure to keep it in a safe place as you will need it for tax filing purposes.


Where Can I Find my Existing EIN Number?

If you're not sure whether your trust has an EIN, you can find out by contacting the IRS. You can also find your EIN on certain documents, such as:

-Your most recent tax return from the last taxable year

-A notice or letter from the IRS

-A financial statement

-Box b of your W-2 form


Does my Revocable Living Trust have a Tax ID Number?

A revocable living trust does not need to have a tax ID or EIN number. A revocable living trust uses the grantor's social security number instead.


What is an Irrevocable Trust?

An irrevocable trust is one where you are permanently transferring assets into the trust, removing your rights of ownership. You cannot change this or cancel it without the permission of the beneficiary. The main purpose of an irrevocable trust is to protect assets from creditors, lawsuits, and taxes. It is often used for estate planning or for charitable giving.

Creators of trusts are commonly called grantors. A grantor of an irrevocable trust creates the trust and contributes funds or property to the trust. However, the grantor cannot amend or revoke the trust agreement. With an irrevocable trust, you can also transfer control of the assets to a trustee who will manage them on behalf of the beneficiary. This allows you to retain some control over how the assets are managed without actually owning them.


Types of Irrevocable Trusts

There are many different types of irrevocable trusts, each with its own set of rules and regulations. The most common types of irrevocable trusts are charitable trusts, spendthrift trusts, and life insurance trusts.

Charitable trusts are created for the purpose of providing financial support to a nonprofit organization. The settlor of a charitable trust cannot revoke or change the terms of the trust, and the assets in the trust are not subject to estate taxes.

A spendthrift trust is designed to protect the assets in the trust from being used by creditors of the beneficiaries. The settlor of a spendthrift trust can specify how and when the assets in the trust can be used by the beneficiaries. Spendthrift trusts are often used to protect inheritances from being spent recklessly.

Life insurance trusts are created to hold life insurance policies for the benefit of named beneficiaries. The death benefits from a life insurance policy are typically exempt from estate taxes, making life insurance trusts an attractive option for estate planning.

Irrevocable trusts can be an important tool for estate planning, but they are also complex and require careful consideration before setting one up.


What is a Living Revocable Trust?

A revocable living trust is a type of trust that can be cancelled at any time and the grantor of the trust is both the trustee and beneficiary allowing for control of the trust's assets. Once the grantor(s) of the revocable living trust pass away, the trust will become irrevocable and an EIN number will need to be created at the time of the last grantor's death. The type of trust matters when it comes to having a tax ID EIN number, so be sure to look at the name of the trust.


Irrevocable Trust vs. Living Revocable Trust: Which is Better?

An irrevocable trust is a type of trust that cannot be modified or terminated by the grantor without the consent of the beneficiaries. A living revocable trust, on the other hand, can be modified or terminated at any time by the grantor.

The main difference between an irrevocable trust and a living revocable trust is that an irrevocable trust is permanent, while a living revocable trust can be changed at any time. Because an irrevocable trust is permanent, it is often used to protect assets from creditors or to minimize estate taxes. On the other hand, a living revocable trust allows the grantor to change their mind about how the assets in the trust are to be distributed.

So, which type of trust do you need? It depends on your individual situation. If you want to protect your assets from creditors or minimize estate taxes, then an irrevocable trust may be right for you. However, if you want the flexibility to change your mind about how your assets are distributed, then a living revocable trust may be a better option.


Updating Beneficiaries on a Trust

If you have an irrevocable trust or a revocable trust, you may need to update your beneficiaries as the years go by. This is especially true if you have a change in your family situation, such as a divorce, death, or birth.

To update your beneficiaries, you will need to amend your trust agreement. You will need to consult with an attorney at a law firm that can give legal advice to draft the amendment for you. Once the amendment is signed by all parties, it should be filed with the court that oversees your trust.

Updating your beneficiaries doesn't have to be a complicated process. By working with a financial advisor and an experienced attorney, you can ensure that your trust remains up-to-date and compliant with the law.


Updating Beneficiaries to Trust Name

When you go to update your beneficiaries and want to use your trust name, some financial institutions will have you enter your tax ID number. If you have an irrevocable trust, you will enter your tax ID EIN number. If you have a revocable trust, you will simply enter your own social security number (i.e. the grantor's social security number). If there are multiple grantors listed on the revocable trust (i.e. a married couple), you can use the first person's social security number of whoever is listed first. Once you have entered the appropriate information, the institution will validate it and allow you to list your trust name as a beneficiary.


Other Situations When EIN Number is Needed

Any nonnatural person needs a separate EIN number to file a tax return. This includes some types of trusts i.e. irrevocable trusts, businesses, nonprofits, etc.

If your trust owns a business, has a bank account, or enters into financial transactions for trust assets, it will likely need its own EIN. An EIN is also required to open a trust-based brokerage account. In addition, if the trustee of your revocable trust will be investing or managing the assets in the trust on behalf of the beneficiaries, the trustee will need an EIN for tax reporting purposes.


Business Owners and EIN Numbers

All businesses, even a sole proprietor, need an EIN number. There are a few things that business owners need to keep in mind when applying for an EIN.

First, they need to make sure that they have all of the required information. This includes the business name, address, and contact information. They will also need to provide some basic information about the business itself. This includes the type of business, the products or services offered, and the number of employees.

Next, business owners need to decide how they want to receive their EIN. They can either receive it electronically or by paper. If they choose to receive it electronically, they will need to provide their email address. If they choose to receive it by paper, they will need to provide their mailing address.

Once all of the required additional information has been gathered, business owners can then begin the application process. The first step is to complete Form SS-4, which is available on the IRS website.


Change of Business Ownership Structure

If you are changing the ownership structure of your business, for example by selling it to a family member or friend, you will need to get a new tax ID number. This is because the IRS considers businesses with different ownership structures to be different entities.

To get a new tax ID number, you will need to fill out the application form and submit it to the IRS. You can find the application form on the irs's website. Once you have submitted the form, you will receive your new tax ID number within a few weeks.

If you are changing the ownership structure of your business, you may also need to file a new business license application with your local government. This is because the type of business you are operating may now fall under a different category. For example, if you are selling products online, you may now need to apply for a sales tax permit.

Before making any changes to your business ownership structure, it is important to consult with an accountant or attorney to ensure that all of the necessary paperwork is filed correctly.

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