Hi 

Some uninformed banks and often credit unions are forever getting living revocable trusts confused with companies and irrevocable trusts.  Some of the bank attorneys are just too stupid to read the law regarding how the IRS treats trusts.  So, when do you need a tax ID for a trust?

If the trust is revocable, then you use the grantor’s Social Security number.  Actually, even an irrevocable trust could simply use the grantor’s Social Security number, under certain circumstances.  Everything hinges on whether or not the trust is considered a “grantor trust.”

"Grantor trust" is a term used in the Internal Revenue Code to describe any trust over which the grantor (also called a “Settlor” or “Trustor”) retains the power to control or direct the trust's income or assets. If a grantor retains certain powers over property in a trust or benefits from the property, the income of the trust will be taxed to the grantor, rather than to the trust.

By definition, all revocable trusts are grantor trusts.  A grantor trust is a disregarded entity under the IRS Code.  It uses the grantor’s Social Security number and should not get a tax ID or EIN.  The IRS “disregards” it as an entity – it’s you.

It reads this way in the IRS Code:

26 USC 677. Income for benefit of grantor

(a) General rule:

The grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under section 674, whose income without the approval or consent of any adverse party is, or, in the discretion of the grantor or a non-adverse party, or both, may be—

(1)  distributed to the grantor or the grantor’s spouse;

(2)  held or accumulated for future distribution to the grantor or the grantor’s spouse; or

(3)  applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor’s spouse.

If you are the grantor in a grantor trust, you simply use your Social Security number.  However, some banks are making their own rules.  If you can’t convince the bank, go to another bank.  You do not want an EIN for your trust, because you will have to start filing a 1041 trust return every year.  Pain and expense!

Some financial institutions require an irrevocable trust to get an EIN.  They are too lazy or stupid to figure out if it is a grantor trust, so they just say it has to have a tax ID.  Just comply with their request, because they are probably right in your case.  The irrevocable trust you will likely encounter is created after the grantor dies.  If your Dad has a revocable trust to avoid probate, the trust does become an independent trust, not a grantor trust, when your Dad dies.  That’s the irrevocable trust you’ll probably be dealing with, and it does need an EIN. 

So, don’t let the banks bully you.  Some will just never give up on requiring an EIN for your living revocable trust.  If it gets bad, try another bank.