In the US, people usually manage and protect their assets and money through the creation of a trust. Trusts are legal entities, and many people wonder if they need a tax ID number for the trusts, as businesses or legal entities require it.
The answer to whether a trust requires a tax ID number is not simple, as it depends on the type of trust. So, if you have a trust or are planning to create a trust, find out whether you will need an Employer Identification Number or other TIN.
Does a Trust Need a Tax ID Number?
A trust is a legal agreement where the creator or grantor creates the trust and transfers the assets to a trustee to manage and hold the assets for the beneficiary or the entity.
Now, people creating a trust should know it is a legal entity as per the laws, so it may need a tax ID number to fulfill its tax responsibilities. However, in the case of the trusts, your requirement for a tax ID number depends on the type of trust you have created.
The dependency of the tax ID number depends on whether your trust tax is included in your tax return or your trust is taxed separately. Trusts have two types – revocable ( the trust income is taxed with your SSN ) and irrevocable (trust income taxed separately).
The IRS has several tax ID numbers; however, in case of a trust, you will need either a Social Security Number/ ITIN or an Employer Identification Number.
Which tax ID number do you need based on your trust?
Now, to understand which tax ID number (TIN) you need to obtain, you should understand the type of trust, such as:
- Revocable Trust:
It is a grantor trust, where the creator has full control over the trust, its income, hence, it can be modified or revoked whenever the grantor wants. Thus, if it earns above the trust income threshold, the trustor includes the income in their tax return and needs only a SSN/ ITIN.
However, when the trustor dies, the revocable trust would turn into an irrevocable trust, and the EIN would be required to disburse the benefits to the mentioned beneficiaries.
- Irrevocable Trust:
It is a trust, where the creator transfers the assets to the trustee to manage and protect them for the beneficiary, and does not have any control over the assets. So, they can’t be modified, revoked, or amended the assets in the trust at least without any judicial permissions.
Hence, since the trust is a separate legal entity, its taxes and taxable income are managed alone and require its unique tax ID number to meet the tax liabilities. The trusts would need to file the Form 1041 to report trust income.
How may one apply for the trust’s tax ID (EIN) number?
EIN application is possible through the online portal, fax, or mail. However, we suggest opting for online services as you can get the tax ID number in a day.
You just need to know your business structure (legal entity type) and register it with the state authority, the responsible party (person who controls the assets in the US) SSN/ ITIN, or a signed authorization for a third-party designee applying for someone.
- On weekdays, use the IRS online service, EIN Assistant, for EIN application.
- Now, choose your business type, enter your business information from location to formation date, etc.
- Now, enter the responsible party’s requested information and review the details once you are done filing the form.
- If everything is valid, submit the EIN application and wait for the IRS approval.
How to obtain SSN/ ITIN?
Now, if you have a revocable trust, you may only need a Social Security Number or Individual Taxpayer Identification Number, which you used for your individual tax return. So, if you already have them, you do not need to obtain them separately for the trust.
However, if you don’t have one, you can apply for an SSN at the Social Security Administration, or you can download the form SS-5 from the SSA.
For ITIN, you must complete Form W-7 with proper documentation to the IRS or apply in person with the IRS Taxpayer Assistance Center or other services.
From the above discussion, you must have understood that you will need a tax ID number for the trusts, depending on the type of trust. However, sometimes a revocable trust may also need the EIN for other purposes, so if your trust has income, you must check if it needs an EIN or other tax ID number.
