I get calls like this far too frequently. After you sit down with your estate planning attorney and create a revocable living trust, you have to take steps to “fund” your trust – in other words, to re-title all of your non-qualified assets so they’re in the name of your trust – not in your own name. This process for bank accounts is pretty straightforward – you bring a COPY of your executed trust agreement to your bank and tell the banker you’d like to change the titling on all of your non-IRA accounts into the name of your new revocable living trust.
Unfortunately, we’re finding that far too many bank employees are poorly trained in this simple process that occurs thousands of times a day here in Florida. Or, the computer software they’re using makes them think they need something they don’t. When the banker is completing the application for the new account, if he or she selects “trust” as the owner of the account, the software may demand an “EIN” (confusingly-named Employer Identification Number yet it’s not just for employers) or “tax identification number” in a format that looks like XX-XXXXXXX. Not XXX-XX-XXXX, like a social security number. The poor banker only knows that it’s not asking for a social security number – and a few minutes later the confused client is calling my office.
Here’s the law: the IRS strongly prefers that revocable “grantor trusts” (don’t worry about that term – only the IRS and lawyers care about it; just accept that your revocable living trust is a grantor trust) use the grantor’s (the person who created the trust) social security number. If it’s a joint revocable trust, the social security number of either grantor can be used. This is because a revocable living trust is invisible to the IRS. It doesn’t exist for tax purposes. All the income and capital gains just flow right to the grantor’s personal 1040 income tax return. This is actually written in the Internal Revenue Code (Treas. Reg. § 301.6109-1(a)(2)) if any bank employee wants to look it up.
Now, very rarely, a person may want to keep track in their own bookkeeping records of the income generated from revocable living trust assets and the income generated from assets not in the trust. So they’ll obtain an EIN just for banking purposes. I think I’ve seen it once during my career. But the income will still flow right to their personal 1040 – EIN be damned.
So, here’s what you do if you’re asked to supply an EIN or tax identification number for your revocable living trust: You just have the banker enter your social security number in the XX-XXXXXXX format! The software is happy, the banker is happy, the IRS is happy, and you’re happy. If your banker balks at entering your social security number, ask for his or her manager and keep going up the chain of command until you find someone who understands the tax laws. You can also refer them to the Treasury Reg mentioned above.
If you’re still getting push-back, find a new bank because that one doesn’t have a clue.
One thing to keep in mind – when all of the grantors who created a revocable living trust are dead, the successor trustee WILL have to obtain an EIN immediately because your social security number cannot be used after your death. Your trust becomes irrevocable and will have to file it’s own income tax return (a 1041). If you had trouble with your bank when tried to open an account for a simple revocable living trust, your successor trustee will have even more hassles after you die and he or she tries to change it to an irrevocable trust.
Other articles/videos you may find interesting:
The Importance of Obtaining Date of Death Values
Ready to make sure everything’s in order for your loved ones in the event you become incapacitated or die? Give Manasota Elder Law a call at 941-444-5958. We’ll help you determine whether you’re all set, or whether there are still some things that need to be done to protect what’s most important to you … your family.