Tag Archives: income tax

What Kind of Tax ID Do I Need for a Trust?

Dear Liza: My parents both have recently passed away. They had a revocable trust.  What type if tax ID do I need?  I created one for the “Estate” type, but should I have made it for the “Trust” type? I am the trustee.  Getting a new tax identification number for a trust that has become irrevocable due to the death of the settlor is a task every new Trustee has to face. The trust needs a new tax identification number to report income earned from the date of death of the settlor to the time when when the trust is distributed to the beneficiaries.

After the last settlor dies, you can’t use their Social Security Number any longer (because they’re dead), so you have to get a new tax id. It sounds like you went online to get the tax id from the IRS. You are right, you should have asked for the number to be set up for an irrevocable trust, not an estate. Don’t panic though, just follow the instructions here to correct that error.

For more information on how to deal with taxes and other trust administrative issues, the Trustee’s Legal Companion (which I co-wrote) is a great resource (honest, it is). For a step-by-step guide to getting an EIN, go to Legal Consumer.com. You’ll find free inheritance law information (which I wrote, too) for all states except Louisiana–just enter your zipcode and look for the article entitled “How to Get a Tax ID number.”

Death and Taxes: The Basics

Dear Liza: My cousin passed away in 2011, and she had a revocable living trust. My cousins inherited the assets 50/50. The assets were stocks. Do my cousins have to file income tax returns for what they received? Also, am I required to file an income tax return for the trust? Your cousins inherited the stocks at their value on the date your cousin died in 2011. Inheritances are NOT ordinary income under the federal tax code, so they receive those assets free of federal income tax. (We have a federal estate tax; if any tax was due, it would have been on your deceased cousin’s estate, if she owned more than $ 5 million in assets when she died.)  Seven states have an inheritance tax, so they’ll need to check on whether any state inheritance tax is due.  Your two cousins will be responsible for filing income taxes on any dividends they received after inheriting the stocks, and for any capital gains earned when they sell that stock if it has appreciated since they inherited it. You, as Trustee, would be responsible for filing a trust income tax return (Form 1041) if the trust earned more than $600 worth of income between the time your cousin died and the time the trust assets were distributed to the beneficiaries.

Do I Have To Report A Gift to the IRS?

Dear Liza, My Dad recently gave me a gift of $13,000. Do I have to report this on my income tax return next year? Nope. Gifts are not considered ordinary income under the US tax code. So, you don’t have to report the gift. If there’s any tax to be paid, it is paid by the gift-giver (in tax-speak, the ‘donor’), not by the recipient (in tax-speak, the ‘donee’). However, your very nice Dad just gave you the maximum amount that he can give to any one individual each year without having to report the gift (in tax speak, this is an ‘annual exclusion gift’), so you are both completely within the law, and the transaction is entirely tax-free. Nicely done!