An Employer Identification Number (EIN) is a unique tax identification number issued by the Internal Revenue Service (IRS) for business entities, estates and trusts. Whether a trust needs an EIN depends on its structure and how it is taxed.
While some trusts require an EIN for tax reporting, others can use the grantor’s Social Security number instead. Understanding when a trust needs an EIN matters when it comes to proper tax compliance and estate planning.
When a trust needs an EIN
A trust generally needs an EIN when it is a separate taxable entity from its grantor. The IRS requires the following types of trusts to obtain an EIN:
- Irrevocable Trusts – Once a trust is irrevocable, it becomes a separate legal entity from the grantor, meaning it must have its own EIN for tax filings. This includes irrevocable life insurance trusts (ILITs), charitable remainder trusts (CRTs) and special needs trusts (SNTs).
- Testamentary Trusts – These are created through a will and become active after the grantor’s death. Since the original owner is deceased, the trust must obtain an EIN.
- Trusts with Multiple Beneficiaries – If a trust distributes income to multiple beneficiaries and is not considered a grantor trust, it needs an EIN to file its own tax returns.
Once a trust has an EIN, it must file the appropriate tax forms, such as Form 1041 (U.S. Income Tax Return for Estates and Trusts), if it earns taxable income.
When a Social Security number is sufficient
Revocable living trusts typically do not need an EIN while the grantor is alive. These trusts are considered grantor trusts, meaning the IRS treats them as part of the grantor’s personal tax identity. As a result:
- The trust does not file its own tax return; income is reported on the grantor’s personal tax return.
- The trust continues to use the grantor’s Social Security number until the grantor passes away or the trust becomes irrevocable.
Once the grantor dies, the trust transitions into an irrevocable trust, requiring a new EIN to handle distributions and tax obligations separately from the estate.
Obtaining an EIN is a straightforward process that can be done online, by mail, or by fax using IRS Form SS-4. However, ensuring that a trust is set up correctly for tax purposes requires careful planning. Seeking legal guidance is a good way to get started.