The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
When someone becomes the executor of an estate or the trustee of a trust, one of their duties is to obtain a tax identification number for the estate or trust. This is known as an EIN (Employer Identification Number) and is issued to the estate or trust by the IRS for tax administration and reporting purposes, and income of the estate or trust will be attributed to this number. So, in this week’s column I thought it might be helpful to provide some pointers for those executors and trustees on this subject.
1. Make sure the EIN is being obtained directly from irs.gov. This seems obvious, but it is helpful to those unfamiliar with the IRS website. Be aware a Google search of “obtain EIN online” could lead to unwelcome results such as websites of companies that offer to collect your information (and sometimes a fee) to obtain an EIN for you. An EIN can be obtained from irs.gov instantly and at no cost. There’s no need to pay a fee or disclose personal, identifying information through any other website.
2. Confirm that appropriate legal authority exists before obtaining the EIN. An EIN should not be obtained before an executor or trustee has legal authority with respect to the estate or trust; therefore, the application should be made once the executor has been appointed and qualified as such or once the trustee has formally accepted trusteeship. To qualify, an executor must take a sworn oath for example. While the IRS website does not ask for this proof, it is necessary if audited.
3. When applying for an EIN for a trust, note that the IRS currently provides 18 different types of trusts to choose from. Choosing the right one matters.
4. You will be asked if the estate will use a fiscal or calendar year. You should select the ending month that will give you the longer tax year.
5. Make sure the name of the decedent matches the probate records. When applying for the EIN of an estate, use the Decedent’s name exactly as stated in probate records. Doing otherwise could cause problems for the executor when the executor attempts to open a bank account in the name of the estate.
6. Make sure the name of a trust matches the name as indicated in the governing instrument. As with an estate, you will want to make sure the name of the trust you list on the EIN application is consistent with the name of the trust as indicated in the governing document.
7. Be aware that the IRS typically will not give the same responsible party more than one EIN on the same day. The IRS typically limits the number of EINs a responsible party can obtain on a given day, with the current cap understood to be one.
8. If wires got crossed and two EINs were obtained for the same trust or estate, you must contact the IRS right away.
9. Know when you might need an EIN for a grantor trust. For many grantor trusts, an EIN will not be needed for the trust while the grantor is still living because the grantor’s social security number will effectively serve as the trust’s EIN, and the trust income will be reportable to the grantor. This is also true when a grantor trust has two grantors who are married and file their income tax returns jointly, as the trust income is reportable on their joint return. However, if the trust has two grantors who are not married to each other or who are married to each other but file separate income tax returns, the trust will need its own EIN.
10. Consider who the “responsible party” is. The EIN application will ask who the “responsible party” is for the trust or estate. The “responsible party” is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. For an estate, it follows that the responsible party is the executor or administrator. For trusts, the responsible party is a grantor, owner, or trustor.
Most attorneys who are handling the estate or trust will obtain the EIN and take care of these matters. However, I believe it is important to understand these points so that you and your etate attorney are on the same page.
While Texas has the best system for transferring your property through your estate planning, it is more than a document. It is a process process with many moving parts to secure your legacy.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com ©