Does a Revocable Trust Need a Tax ID Number?

The answer to this question in one word is “No.” You don't need a separate tax ID number for a revocable trust while the owner is alive. The social security number is enough.

But I suppose you are not here for a 'one word' answer. So, let's dive a little deeper into the topic.

A revocable trust means a trust that can be changed or eliminated. A trustor (the owner) can add and remove assets as they please or revoke the entire trust if they want. A trustee manages the property or assets. Distributing the wealth to the beneficiaries is another duty of the trustee.

Revocable trusts are commonly known as "living trusts." They are a useful estate-planning strategy for reducing the expenses and difficulties of probate, protecting privacy, and setting up your assets for convenience of transfer after your demise.

Allegedly, some banks push you to get a separate tax ID number for a revocable trust. If they trap you into getting a separate employer identification number (EIN) or a new EIN, you'll have to fill out IRS form SS-4. Then come tax time you'll receive a letter from the Internal Revenue Service (IRS) asking why you didn't file the trust tax return alongside your own tax return. And you'll have to pay your accountant to send a letter saying it doesn't need to be filed.

So I'll say it again, you don't need a separate tax identification number for a revocable trust during the life of the owner/creator.

Why Doesn't A Revocable Trust Need A Separate Tax ID Number?

Your revocable trust isn't a separate legal entity. It's under your control, a separate legal entity with a tax ID number. So, the trust isn't separate from its creator. Moreover, it's not separate from the creator's spouse.

Separate tax ID numbers are needed for legal entities, and since the trust isn't independent and the creator controls it, it doesn't need a tax ID number or as some think its own social security number. The grantor’s social security number is just fine.

However, when the owner (trustor) dies, the trust becomes irrevocable. After the death of the grantor, no one can change its terms or terminate the trust. It becomes a legal entity and needs a separate trust tax ID number, will have its own separate income tax return, and for federal income tax purposes will be taxed as such.

The Owners Always Own Revocable Trusts

A revocable trust can be changed or revoked by the original owner at any time. Unlike an irrevocable trust, which cannot be changed once it is created, or a charitable remainder trust, which must be used for charitable purposes, a revocable trust gives the owner complete control over the assets in the trust.

This means that the revocable trusts do not have a separate legal existence from the owner. Assets in a revocable trust are not separated from the owner's personal assets—the owner keeps control over the assets in the trust during his lifetime.

They can change the terms of the type of trust, add or remove assets, change the name of the trust, or even revoke the trust entirely if they so choose. The only exception is if the trust has already been used to purchase property, the property would need to be sold to get removed from the trust.

Advantages Of A Revocable Trust

• A revocable trust is another approach to estate planning to guarantee that the grantor's beneficiaries will get their inheritance, particularly in the event of the grantor’s death or incapacitation.
• People often use reversible trusts to bypass probate court. A will is "proven" in court throughout the probate process, making it a legitimate public record. Probate may be costly and time-consuming and often causes more trouble than it solves.
• The public typically has access to your will and the list of your valuables currently in probate. The assets in your wealth and the beneficiaries who will inherit them are visible to anybody curious about your estate or concerned about business, creditor protection, or other purposes. This means they are going to see balances of your bank account, personal tax returns, trust assets, and the works! In this regard, revocable trusts are more secure and private because they don't go through the probate procedure.
• If you own property in other states than your living, transferring those assets to a revocable trust bypasses a separate probate proceeding. Otherwise, the probate procedure will take place, which is long and expensive.
• It is not considered a separate entity for tax purposes even if it has a separate federal tax id number. This means the trust property does not receive an independent tax basis for capital gains purposes. This means the tax rate for a trust account would be the same as a sole proprietorship.
• Provided the heirs are underage or incapable of managing their financial matters, the trustee of a trust may be able to handle the wealth in their stead if the trust is structured with the required limitations and conditions.

Drawbacks Of A Revocable Trust

• A revocable trust doesn't protect your entire wealth. It only applies to the part of the estate included in the trust. This implies that a different kind of document, for instance, a will, could be required if you intend to manage or transfer a significant amount of the assets or whole estate.
• There are no tax advantages in transferring assets to a revocable trust because your estate goes out of the probate laws but not tax laws. The "gross estate" will determine the sum of due estate tax upon your death. Such trusts are flexible, and their value can be changed, so there are no tax advantages. The owner of the revocable trust will continue to pay taxes on any income with his personal return even though the money is now held in a trust that is not a separate taxable entity.
• It costs more than a straightforward will. There are complex documentation and upfront costs involved to establish the trust. You may have to consult with a financial institution or an attorney. But in many circumstances, spending extra in advance can save your family a far larger amount in fees after your death. Although, it may not be the best option for people with fewer assets.

Conclusion

You may choose any of the different kinds of estate plans. Each plan has different purposes, benefits, and drawbacks. A revocable trust is good to set up to avoid the probate procedure and access to the public. But it doesn't protect all your assets or provide any tax advantages. Moreover, a revocable trust doesn't need its own EIN because it's not separate from the creator. So, the social security number of the owner is enough.

This is not legal advice from a law firm, so as always the general rule is to do your own research.

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