Trusts play very important roles in estate plans and wealth management. If you create a living trust (also called revocable trusts), it will receive your assets after your death. This will allow your heirs to avoid probate, and it can also minimize the potential of estate taxes. While a will just allows you to distribute your assets to your heirs, a trust lets you set up conditions and distribute the assets over time.
You don’t have to wait to transfer assets to a trust until after your death. In some cases, you can transfer assets to a trust while you are still alive. In this situation, a trust can also have numerous benefits such as shielding assets from creditors or transferring income from certain assets or businesses from you to the trust.
Regardless of why you are setting up a trust, you will need to obtain an EIN. This guide is designed to answer your questions and walk you through the process.
Frequently Asked Questions
We hear a lot of different questions about EINs for trusts. Whether you’re creating an irrevocable trust or nearly any other type of trust, you will need an EIN number. To help you out, we’ve put together answers to commonly asked questions about trusts and EINs.
What Is A Trust?
A trust is a financial arrangement between three parties: the trust administrator, the grantor, and the beneficiaries. The grantor (aka trustee) sets up the trust. The beneficiaries benefit from the trust. Typically, they are either people or charities. The administrator runs the trust. They follow the wishes of the grantor. There are many different types of trusts for a wide range of purposes.
Do You Need A Tax ID Number For A Trust?
All trusts need a tax ID number (EIN) except grantor trusts and IRA trusts. However, grantor trusts need an EIN if they don’t file using the Optional Method. IRA trusts need an EIN if they’re required to file Form 990-T (Exempt Organization Business Income Tax Return).
What Information Do You Need To Apply For A Trust EIN?
To apply for a trust EIN, you need to know the type of trust, the trustee’s name, the trustee’s Social Security Number, the address of the trust, and the grantor’s Social Security Number. If the trust employs people, you also need the number of estimated employees and if you anticipate owing more than $1,000 in payroll tax during the year.
Can I Obtain My Tax ID Number Via Mail Or Fax?
Yes, you can apply to obtain an EIN for a trust through mail or fax. In both cases, you will need to fill out a paper EIN application. Then, you will need to wait for the IRS to process the paperwork and send you an EIN in the mail. Even if you apply over fax, the IRS will still mail the number to you.
How Long Does It Take To Get A Tax ID Number For A Trust?
The waiting time to receive a trust EIN depends on how you apply. If you apply for this tax ID number over fax, it takes about two weeks to get your number. If you apply through the mail, processing can take six to eight weeks. An online EIN application is very fast. Applying can take less than a half hour and you usually get the number right away.
Apply for a Trust Tax ID (EIN) Number
Now that your main questions have been answered, let’s look at how to apply for an EIN for a trust. The best option is to apply online, but whether you apply online or using fax or mail, you will need to work through these seven steps.
1. Provide Contact Details About the Trust
This section of the online EIN application asks for basic details about the trust. This is information that the government needs to contact you about your EIN. It includes the legal name of the trust. For example, this might be Henry Simpson Family Trust.
This section also needs the address of the trust and the name of the trustee. You also must note the name of a responsible party (usually this is the trustee) and their Social Security Number. Note that the trustee is another word for the trust administrator.
2. Note the Type of Entity
All kinds of entities such as businesses and nonprofits use EINs. There are a lot of options in this situation, but you should select trust. You will identify your entity as a trust. Then, you will note the Social Security Number of the grantor. The grantor is the person who sets up the trust.
3. Supply Information About Incorporation
Trusts cannot be incorporated so you will answer that the trust is not a corporation. If there are any follow-up questions about incorporation, you will note “non-applicable” or “N/A.”
4. State the Reason for Applying for an EIN
In this section, you also have lots of choices. Several different choices may apply. However, the best option is to note that you are applying because you are creating a trust. You also need to note the type of trust. For instance, you will explain if it’s an IRA trust, a living trust, or another type of trust.
5. Don’t Get Confused About the Wording “Date Business Started”
Don’t worry. The government knows that your trust isn’t a business. This is just boilerplate language used on the EIN application. When you see this question, just note the date that the trust was established or is going to be established.
6. Share Employee Details If Applicable
In the relatively rare case that your trust is going to be employing people, you will need to provide information about your employees. You should note the number of employees. Then, you should note if you want to file payroll tax annually. Typically, you can only do this if you expect to pay less than $1,000 in payroll tax during the year. If you pay more than $4,000 in wages, you won’t qualify to file annually.
7. Ignore Other Business Questions
You may see a few more business-related questions on the EIN application. They may include questions about your principal business activity or the types of products/services you provide. Again, this doesn’t apply to trusts so you don’t need to worry about this section.
This is all you need to do to apply for an EIN for a trust. Note that you can only apply for one EIN number per day. As soon as you get the number, you’re ready to go. You can finish setting up your trust and start using the number.