Tax ID for a Revocable Trust in New York

You don't need a tax identification number of Employer Identification Number for a revocable living trust in New York. You report the income of the revocable trust using the grantor's social security number. A revocable living trust in New York is considered a "grantor trust" for tax purposes. All income, deductions, and credits generated by the trust property should be reported on the grantor's personal IRS Form 1040. The trust itself does not file a separate tax return during the grantor's lifetime.

When financial institutions, such as banks or investment companies, request an EIN or TIN for the trust, provide the grantor's Social Security number. This ensures proper reporting of trust income and avoids confusion with the IRS. The grantor remains responsible for paying taxes on all trust property during their lifetime. Only when the grantor dies does the trust become irrevocable and the need for a its own EIN is required.

Potential Need for Separate Tax ID

Although the general rule is that revocable living trusts do not need a separate EIN to report income, there may be exceptions:

• in cases a court orders a revocable trust to have its own EIN;
• in case when the trust is set up to operate a business, having its own EIN may be required to separate the business income from the grantor's personal income.

When a financial institution requests for a trust to have its own EIN, just give the grantor's SSN and explain the trust is revocable and not irrevocable.

Trust Becomes Irrevocable at Grantor's Death

Upon the grantor's death, the Revocable Living Trust becomes irrevocable, and the trust provisions dictate how the assets will be distributed or managed. In some cases, the trust may be designed to split into multiple separate trusts, each with its own specific purpose or beneficiary. For example, the trust may create a Marital Trust for the surviving spouse and a Family Trust for the children. Each resulting trust is treated as a separate taxable entity for federal income tax purposes. This means that each trust will have its own tax identification number and will be required to file its own tax returns. The splitting of the trust into multiple entities can provide greater flexibility in managing and distributing the assets according to the grantor's wishes. It can also allow for different tax strategies to be applied to each trust, depending on its specific goals and beneficiaries.

Once the revocable living trust becomes irrevocable, each resulting trust must obtain its own Tax Identification Number (TIN) from the IRS. This TIN is also known as an Employer Identification Number (EIN). The trustee of each irrevocable trust will need to apply for the EIN by submitting IRS Form SS-4, either online, by mail, or by fax. The application process is relatively simple and can be completed quickly. It is important to note that the beneficiary's Social Security number should not be used as the trust's TIN. Each trust is a separate legal entity and requires its own unique identification number for tax reporting purposes. Using the correct TIN for each irrevocable trust ensures that the trust's income and expenses are properly reported to the IRS and that the beneficiaries' personal tax returns are not commingled with the trust's tax obligations.

Once an irrevocable trust is established and funded, it may generate income from various sources, such as investments, rental properties, or business interests. If an irrevocable trust generates more than $600 in gross income during a tax year, it is required to file a separate trust income tax return using IRS Form 1041. This return is due on April 15th of the following year, with a possible extension to September 15th if requested. The trust's income, deductions, and credits are reported on Form 1041, and any taxable income is subject to trust income tax rates, which are typically higher than individual income tax rates. If the trust distributes income to its beneficiaries, those distributions are reported on Schedule K-1 of Form 1041. The beneficiaries then report the income on their personal tax returns and pay taxes at their individual income tax rates. Trusts with $600 or less in annual gross income are not required to file a separate tax return, but the trustee must still maintain accurate records of the trust's income and expenses for tax purposes.

Navigating the intricacies of trusts can be a daunting task, but with the proper legal counsel, establishing and managing trusts can be accomplished in full compliance with the law. If you find yourself in need of guidance, our experienced team at the Law Offices of Albert Goodwin stands ready to provide the assistance you require. You can call us at 212-233-1233 or send us an email at [email protected].