Living Trusts Generally Do Not Require A Separate Tax I.D. Number

 
 
This week’s question:
 
My husband and I are thinking about drawing up a living
trust and related documents but are concerned about the need for a separate tax
identification number for the trust. We would both be trustees of our family
trust. Can you shed some light on this topic?
 
/s/Jenny J.
Almaden Valley
 
Dear Jenny—

You have raised a very good question, Jenny. You must be
concerned about the possibility of your trust needing separate annual fiduciary income tax returns, state and
federal, with accompanying cost and nuisance factors.
 
Let us assume for the sake of discussion that you do in fact
have a “living trust”. This is also called a “revocable” trust. (A few months ago
an article appeared in this column pointing out the differences between
revocable and irrevocable trusts
which can be seen on my website.) The revocable trust or living trust is also
known as a “grantor” trust.
 
You can think of the “grantor” of the trust as
the “creator” of the trust, you and your husband. Other terms
often used are the “settlor” of the trust or
“trustor”. Sorry about all of this redundancy and possible
confusion, that’s just the way it is.
 
Internal Revenue Code rules and Treasury Regulations
generally provide that so long as the trust is a “grantor trust”
and all income is distributed to or for the benfit of the grantor(s), no
federal tax i.d. number (TIN) is required while the grantor, or at least one of
the two grantors, serves as Trustee or Co-Trustee. If that is the case, the
trust uses the grantor’s personal social social security number of either
grantor as its TIN.
 
Thus, under the Treasury Regulations, if you and your
husband have a typical living trust, you would continue to file your usual
state and federal tax returns each year and report all income under your own
social security numbers. In a sense, the trust is treated as one person for
income tax reporting purposes.
 
As long as you and your husband are both living and filing
your normal tax returns, then usually there would be no requirement to file
separate state and federal fiduciary tax returns for the trust.
 
You will want to contact your own attorney, however, if part
or all of the trust becomes irrevocable, through death or other means, or if
someone else becomes trustee of your trust. Other exceptions apply too, for
example, if the trust conducts a business as a sole proprietor. In those
situations, a visit with your own attorney or CPA is essential.
 
Thank you for emailing in your question, Jenny. I think our
Almaden Times readers will
appreciate it.
 
/s/Donald J. DeVries
Almaden Valley
 
 
Donald J. DeVries is an attorney practicing law in the
Almaden Valley. Past Almaden Times
articles since 1986 can be accessed through his web site: www.almadenvalleylawers.com. 
If you would like him to answer your question in his next Almaden Times column, you can reach him by
email at don@almadenvalleylawyers.com,
with “Almaden Times” in the subject line, fax at (408)268-6502, telephone
at (408)268-9500, or mail at DeVries & Horowitz, 6475 Camden Avenue, Suite
200, San Jose, CA 95120. Your matters are personal and private, so of course,
he will not disclose your identity or any details about your situation. Mr.
DeVries writes this column to provide you with general information about
important legal matters affecting California residents—not to give you
legal advice about your specific matter. No attorney-client relationship is
created by these articles. The law is complex and constantly changing and
varies from state to state. So you should consult an attorney before taking
any action that would affect your personal or business matters.