I got a call from a client in Jackson, Tennessee yesterday regarding the Certificate of Deposit he was transferring to his Irrevocable Trust. The client went to the bank and requested to change ownership from himself as an individual owner to himself as trustee of an Irrevocable Trust he had established for his children. Everything was going smoothly until the bank employee asked for the EIN/Tax ID for the Irrevocable Trust. While certainly there are types of Irrevocable Trusts that require a separate Tax ID, theIRS does not require or recommend obtaining an EIN/Tax ID Number for “Grantor Trusts.” A “Grantor trust” is a term used in the Internal Revenue Code to describe any trust over which the grantor (called a “Settlor” in Tennessee) or other owner retains the power to control or direct the trust’s income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. Therefore, the Trustee can use the Grantor’s social security number for the Tax ID.
This is a common misunderstanding for many bank employees not familiar with this very technical rule. I get this question occasionally from not only banks but financial advisers and other financial institutions because trusts are growing as the preferred way for families to move assets from one generation to the next with ease and without having to deal with lawyers, judges and the government in the probate court.