Living Trust
Living Trust Tax ID
Do I Still Need To Have A Living Trust Tax ID?
Many believe that executing a living trust agreement can exempt one from all taxes, which is not generally true since a grantor (the person who initiates the living trust agreement) is still liable to pay taxes, especially for estate taxes and will still be required what is referred to as a living trust tax ID, which in most cases is the grantor's Social Security number.
Although a living trust is a veritable tax and estate planning tool, there is no law imposing any inherent estate tax advantage for one with a living trust. However, the living trust agreement may contain provisions and conditions that can seek for a postponement, reduction or elimination of certain estate taxes based on existing laws governing taxes, similar to those that are being used in the creation of wills.
Regardless of the living trust tax ID assigned to the grantor, the living trust agreement still could exempt a grantor from paying income taxes during the validity of the trust agreement, also similar to processes done in a will.
But as long as the grantor is the trustee or co-trustee of the living trust agreement, the law requires no income tax to be filed for the living trust, since the living trust tax ID would still be the Social Security number of the grantor. Therefore, all deductions and income related to the assets or properties held in the trust will just rely on the grantor's individual income tax returns.
When a grantor is no longer the trustee, information returns must be filed by the trustee to report all deductions and incomes relative to the estate covered in the living trust with the Internal Revenue Service and attribute the same to the trustee's personal return. However, no additional tax is compounded by reason of the living trust.
The living trust can be revoked anytime and will remain identified with the grantor, since it will be using the same Social Security number as that of the living trust tax ID, where income or loss will still be reported on the grantor's Form 1040.
When the grantor passes away, the living trust becomes an irrevocable living trust and will now require it's own Taxpayer Identification Number (TIN) and will become a separate taxable entity. This is when the successor will apply for a living trust tax ID, for which tax returns would then be filed using the Form 1041.
However, it will still be good to know state laws and regulations governing living trusts since it may vary from state to state, so the best way to deal with the complexities of the living trust, as well as with all underlying technicalities that go along with it, is to seek legal and expert advise on the matter.
When seeking for advice, always look for competent and licensed estate planning attorneys, since not all lawyers have knowledge about estate planning.
Some estate planning lawyers earn their living through probate, so also make sure that the one you select is one who will help you avoid probate, especially one that you may like and trust, that way you have a more solid lawyer/client relationship.
Lastly, choose an attorney who is willing to provide you with exceptional service, especially one who would rather take your calls for inquiries and one who will do the work himself and not delegate the task to an associate or paralegal.
A living trust may be a confusing and complex process, especially when it deals with legal technicalities like conditions, provisions, living trust tax ID's and such, but as long as you have an able and capable adviser to guide you along the way, you can rest assured that your living trust agreement is in good hands.