Obtaining an EIN for Trusts and Estates
When a loved one passes away, there are many legal and financial matters that need to be handled by the Personal Representative (also known as an Executor) of their estate. One of the first tasks that may need to be completed is applying for a federal Employer Identification Number (EIN) with the IRS. This number is used to identify the estate for tax purposes and is necessary for opening bank accounts, filing tax returns, and other financial transactions. In this article, the probate and estate planning attorneys of Thompson Legal discuss the steps involved in obtaining an EIN for an estate and provide helpful resources to guide you through the process.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions it is advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan Probate Attorney today.
What is an EIN?
An EIN stands for Employer Identification Number, think of an EIN like a Social Security number, but for a trust or estate. It's a unique nine-digit ID used by the IRS to track tax filings and payments. An EIN helps the IRS keep track of things and ensures that trusts and estates fulfill their tax obligations.
Applying for an Employer Identification Number (EIN) for a trust or estate is a crucial step for tax and administrative purposes. Many transactions, like the sale of real estate, opening of a bank account, and disbursement of certain assets will require that an estate or trust obtain an EIN first.
1. Determine if You Need an EIN
The IRS provides guidelines on who needs an EIN. Generally, an estate will need an EIN if any of the following apply:
Opened a bank account that requires an EIN for banking purposes
The trust or estate has income that requires filing an income tax return (Form 1041). This could be from investments, property rentals, or a business operated by the trust/estate.
The estate operates a business.
The estate has employees.
The estate is involved in certain types of trusts, such as a grantor trust after the grantor's death, and
The trust or estate is involved in certain retirement plan arrangements.
Not all trusts and estates need an EIN. It's important to consult with a tax professional or attorney to determine whether your specific situation requires an EIN.
2. Choose Your Application Method
The IRS offers several ways to apply for an EIN:
Online: This is the most convenient method. You can apply through the IRS website's EIN Assistant tool. The application is completed in real-time, and you receive your EIN immediately upon successful submission.
Fax: You can download Form SS-4, Application for Employer Identification Number, fill it out, and fax it to the appropriate IRS fax number based on your state or territory.
Mail: If applying by mail, complete Form SS-4 and mail it to the designated IRS address based on your location. This method typically takes the longest to process.
3. Gather Necessary Information
Regardless of the method you choose to apply, you will need to provide certain information about the estate, the personal representative, and the responsible party, including:
Legal name of the trust or estate: This should be the official name as it appears in the trust document or court records.
Name and Social Security Number (SSN) of the trustee or executor: The trustee or executor is the individual responsible for managing the trust or estate.
Type of trust or estate: Specify whether it's a testamentary trust, living trust, irrevocable trust, etc.
Reason for applying: Indicate why the trust or estate needs an EIN.
Date the trust or estate was established: This is the date the trust document was signed or the date of the decedent's death for an estate.
Principal activity of the trust or estate: Briefly describe the main purpose or function of the trust or estate.
Number of employees: If the trust or estate has employees, provide an estimate.
4. Complete the Application
Carefully fill out Form SS-4 or complete the online application, providing accurate and complete information. Double-check for any errors before submitting. The IRS’s instructions on Form SS-4 can be found here.
5. Keep a Record of Your EIN
Once you receive your EIN, store it in a safe place. If you applied online, an electronic version of your EIN letter will be immediately available once the application is submitted. You'll need your EIN for various tax and administrative purposes, such as filing tax returns, opening bank accounts, and hiring employees.
Responsibilities of the Personal Representative
The Personal Representative of the estate is responsible for ensuring that the estate obtains an EIN if needed and that all tax obligations are met. This includes:
Filing an annual income tax return for the estate (Form 1041)
Paying any taxes due
Keeping accurate records of all income and expenses
The IRS provides helpful information for executors and administrators on their website: https://www.irs.gov/businesses/small-businesses-self-employed/information-for-executors
Conclusion
While the process of obtaining an EIN might seem straightforward, consulting with an attorney can provide invaluable peace of mind and prevent potential complications down the road. An attorney can help you choose the right structure, ensure accurate completion of the application, and understand your tax obligations, saving you time, money, and stress in the long run. If you have any questions or need assistance with this process, please don't hesitate to Contact Thompson Legal today to schedule a consultation and discuss your case.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Probate Attorney, please Contact Thompson Legal at (734) 743-1646 to schedule a consultation.
